Welcome to your home tax deduction checklist! For homeowners, this kind of guidance is essential in the wake of all the changes ushered in by the new tax plan, the 2017 Tax Cuts and Jobs Act, that are still rolling in.
The biggest change for 2021? The standard deduction jumped a couple of hundred dollars for taxpayers—to $12,550 for individuals, $18,800 for heads of household, and $25,100 for married couples filing jointly. And this higher number means you need to dig into all of your home expenses to see if their total sum tops the standard deduction, depending on your filing status. (If the total doesn’t surpass it, then you’ll just take the standard deduction on your taxes when you file.)
To help, here’s a list of all the tax breaks for homeowners.
In the past, you could deduct the interest from up to $1 million in mortgage debt (or $500,000 if you filed singly).
“But for loans taken out from Dec. 15, 2017, onward, only the interest on the first $750,000 of mortgage debt is deductible,” says William L. Hughes, a certified public accountant in Stuart, FL.
Mortgages are structured so that you start off paying more interest than principal. For example, in the first year of a $300,000, 30-year loan at a fixed 4% interest rate, you’d be deducting $10,920. (To find out how much you paid—or will pay—in mortgage interest any year, punch your numbers into our online mortgage calculator.)
Note that taking this deduction under the new tax law does require itemizing deductions, but it may be worth the hassle, especially for new homeowners.
If you bought a home and paid points, then you can still deduct those from your taxes. They must be “true,” or discount, points, not origination points. After all, points are essentially mortgage interest that you prepay, so it makes sense that they’d be treated like the rest of your mortgage interest. Each point is 1% of the loan amount, so if you paid 2 points on that $300,000 loan, you can deduct $6,000.
Watch: 5 Pet-Related Tax Deductions We Bet You Didn’t Know Of
Private mortgage insurance
Good news! You can deduct the interest on private mortgage insurance (PMI) thanks to the Mortgage Insurance Tax Deduction Act of 2021, which reinstated certain deductions and credits for homeowners that were set to expire in 2020.
If you can’t make a 20% down payment on your home, most lenders require that you pay PMI. The upside: It’s tax-deductible as long as your adjusted gross income is less than $100,000. (For each $1,000 you make after that, you can deduct 10% less of your PMI, up to $109,000.) PMI is generally between 0.3% and 1.5% of the loan amount annually, so on a $300,000 loan, you’d be deducting between $900 and $4,500.
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