Tax Season Tips for Homeowners*
Here's what you need to know about tax deductions.
If you're a new homeowner, you might be wondering how homeownership affects your taxes. The answer is: It depends on one big thing—will you be itemizing your deductions or claiming the standard deduction?
In order to decide, you need to list all the deductions you would be able to claim (such as child care costs, charitable donations, IRA contributions, earned income tax, etc.) and compare that total to the standard deductions for 2020, which are:
- $24,800 for married couples filing jointly, a $400 increase from the 2019 tax year.
- $12,400 for single filers and married individuals filing separately, a $200 increase from the prior year.
- $18,650 for heads of households, a $300 increase.
If the itemized total is higher, it makes sense to itemize your deductions, and there are a few key deductions homeowners can take advantage of.
Mortgage interest. The amount of interest you pay annually on your loan is tax-deductible, and your mortgage holder will send you a statement with that amount listed each year. There's also a mortgage interest tax credit available to lower-income homeowners who were issued a qualified Mortgage Credit Certificate (MCC) from a state or local government to subsidize the purchase of a primary home.
Property taxes. You may deduct up to $10,000 ($5,000 if married and filing separately) of property taxes in combination with state and local income taxes or sales taxes.
Medically necessary home improvements. If mom moved in with you and you needed to modify a shower for her safety or build a ramp for access to the home, those accessibility improvements can be fully deducted.
Mortgage insurance premiums. If you had a less than 20% down payment or an FHA loan and pay mortgage insurance (PMI), the amount of PMI you pay each year is treated as mortgage insurance and can be deducted.
Home equity loan interest. If you took out a home equity loan (HELOC) specifically to spend on home improvements, then that interest can be deducted from your taxes.
Home office. If you are self-employed and have a home office, you can deduct $5 per square foot of home used to run your business. Be careful with this one, as it's a commonly misunderstood and often abused deduction—the space must be exclusively used for business, and not double as a guest room, playroom, etc. This IRS worksheet can help you calculate your deduction.
Uncle Sam does try to incentivize homeownership and give homeowners a break, so if you itemize your deductions, it makes sense to put your home to work for you at tax time.
At Lennar, we believe in putting the dream of homeownership within reach. Contact us to find a Lennar community near you and find out how much home you can afford.
* Not tax advice; homebuyers should consult with their tax advisor. The above is for informational purposes only.