6 Tax Break Savings For Homeowners: A Complete Guide for Filing This Year
You might recall The Tax Cuts and Jobs Act, the most significant revision of the United States’ tax system in more than 30 years, entered into effect on January 1, 2018. As a result, your taxes are likely to have changed significantly, particularly the tax benefits of homeownership. This new tax code remains in effect today.
You may recall that the Internal Revenue Service postponed filing season by roughly two weeks during the height of the COVID-19 outbreak. However, no extensions are available this year, and the deadline for submitting is April 18, 2023. (According to the IRS, “the due date is April 18, rather than April 15, due to the Emancipation Day holiday in the District of Columbia for everyone except taxpayers residing in Maine or Massachusetts.” Due to the Patriots’ Day holiday in both states, taxpayers in Maine and Massachusetts have until April 19, 2023, to file their returns.”)
You may be asking what else you should be aware of before submitting your 2022 taxes, such as if your work-from-home arrangement qualifies for a tax break deduction.
Look no further than our thorough guide to all the tax break perks of owning a house, where we list down all the tax break deductions homeowners should be aware of when filing their 2022 taxes in 2023. Continue reading to guarantee you aren’t overlooking anything that might save you money!
Tax break 1
Homeowners with mortgages that began before December 15, 2017, can deduct interest on loans of up to $1 million.
“However, for acquisition debt incurred after December 15, 2017, homeowners can only deduct interest on the first $750,000,” explains Lee Reams Sr., TaxBuzz’s chief content officer.
Why is it significant: The opportunity to deduct mortgage interest remains a substantial benefit of house ownership. The larger your tax savings, the more recent your mortgage.
“Because of how mortgage payments are amortized, the first payments are almost entirely interest,” Wendy Connick, owner of Connick Financial Solutions, explains. (Use this online mortgage calculator to see how your loan amortizes and how much interest you pay.)
It is important to note that the mortgage interest deduction is an itemized deduction. This implies that in order for it to work in your advantage, all of your itemized deductions (more on this below) must be larger than the new standard deduction, which was roughly quadrupled by the Tax Cuts and Jobs Act.
Also, keep in mind that the standard deduction amounts have increased for the 2022 tax year. Individuals can now deduct $12,950, while married couples filing jointly can deduct $25,900. The deduction for the head of family has also been increased to $19,400. If you’re 65 or older, you can add $1,400 per person if married and filing jointly, or $1,750 if you’re a head of household or a single filer.
Because of the higher standard deductions, itemizing your deductions may not be worth it this tax season.
So, when would itemizing be advantageous? For example, if a married couple under the age of 65 paid $20,000 in mortgage interest and $6,000 in state and local taxes, you would exceed the standard deduction and be able to lower your taxable income by itemizing.
Tax break 2
This deduction is restricted at $10,000 for married couples filing jointly, regardless of income. (For additional information on calculating property taxes, go here.)
Why it matters: According to Brian Ashcraft, director of compliance at Liberty Tax Service, taxpayers can claim a single $10,000 deduction.
Just keep in mind that property taxes are on the itemized list of all of your deductions, which must total more than your specific standard deduction to be worthwhile.
Also, keep in mind that if you have a mortgage, your property taxes are included in your monthly payment.Tax break 3
Tax break 3
Qualifying solar electric panels and solar water heaters, according to Bishop L. Toups, a taxation attorney in Venice, FL, are eligible for a credit of up to 30% of the cost of the equipment and installation.
You can also get a $500 lifetime credit for energy-efficient home upgrades performed to your house through December 31, 2022. Exterior windows, doors, and skylights, insulation, and the expense of house energy audits are examples of energy-efficient modifications.
More good news: the IRA extended and expanded the credit, such that from January 1, 2023, the revised credit will be worth up to $1,200 per year for an eligible property.
Tax break 4
Good news for all self-employed folks who operate mostly from their home office: You can deduct $5 per square foot of office space up to 300 square feet, for a maximum deduction of $1,500.
Understand that there are extremely rigorous requirements on what constitutes a dedicated, fully deductible home office space for individuals who can claim the deduction. More on the frequently misunderstood home office tax deduction.
The little print: What’s the bad news for everybody currently working remotely? Unfortunately, even if you spend the most of 2022 in your home office, you are not eligible for the home office deduction under the CARES Act if you are a W-2 employee.
Tax break 5
To qualify for this tax credit, your home renovations must exceed 7.5% of your adjusted gross income. So, if you earn $60,000, this deduction applies only to purchases of more than $4,500.
For many older homes who want to age in place and install changes such as wheelchair ramps or grab bars in bathrooms, the expense of these improvements might result in a handsome tax advantage. Widening entrances, lowering cabinets or electrical fixtures, and installing stairlifts are all examples of tax-deductible upgrades.
The fine print: You’ll need a doctor’s letter to establish that these alterations were medically essential.
Tax break 6
According to the IRS, if you have a home equity line of credit, or HELOC, the interest you pay on that loan is deductible only if it is used to “buy, build, or improve a property.” So you’ll save money if your house needs a kitchen renovation or a half-bath. However, you cannot use your house as a piggy bank to pay for education or a wedding.
The fine print: You can only deduct up to $750,000 in interest paid on your HELOC and mortgage combined. (And if you took out a HELOC before the new 2018 tax plan for anything besides improvements to your home, you cannot legally deduct the interest.)
