NEW YORK, May 26, 2022 (Newswire.com) - Buying a home is a huge financial commitment. The good news for some homeowners is tax season can lessen the financial burden, thanks to a specific set of tax deductions designed to make homebuying more affordable. So, whether someone is a new homeowner or has owned their home for decades, these five tax tips can help homeowners make the most of tax season.
#1 Get organized
Tax season sometimes feels like a flurry of paperwork. And homeowners often have a lot to track, whether it's receipts, bills or tax documents. Some important tax documents arrive via mail or email in the first few months of the new year. So it's wise for homeowners to keep an eye out for these forms and plan to organize them in a dedicated physical or digital space.
For example, form 1098 outlines the mortgage interest paid in the prior year. Any homeowner hoping to take the mortgage interest deduction will want to keep this form handy. Immediately filing away tax forms can help simplify the filing process and prepare homeowners if the IRS ever requests an audit.
#2 Understand the difference between itemizing and the standard deduction
Taxpayers can take a lump sum standard deduction to reduce taxable income or, if they are higher in total, they can report individual eligible expenses, called itemizing. The deductions someone itemizes could include expenses related to owning a home, donating to charity or several other available deductions.
For the tax year 2021, the standard deduction for married couples filing jointly is $25,100, which rises to $25,900 for tax year 2022. The standard deduction for individuals or married couples filing separately is $12,550 in 2021, rising to $12,950 in 2022. Heads of households have a standard deduction of $18,800 in 2021, rising to $19,400 for 2022.
That means if someone is filing as head of household for 2021, they'd need more than $18,800 in itemized deductions to make it worth it. For any homeowner who isn't sure whether to itemize or take the standard deduction, it's wise to consult with a tax professional.
#3 Understand eligible homeowner tax deductions
There are several housing-related expenses that homeowners can deduct from taxes, including:
- Mortgage interest
- Home equity loan interest (if the loan proceeds were used to improve the home)
- Discount points
- Home office expenses (if the space is used exclusively for business)
- Property taxes
- Mortgage insurance (2021 is the last year for this deduction, though it may be extended)
#4 Review what expenses are not tax-deductible
Certain expenses of owning a home are costly but, unfortunately, not tax-deductible. These include, but are not limited to:
- Mortgage closing or refinancing costs
- Homeowner association (HOA) fees
- Home insurance premiums
- Utility costs
- Money paid for domestic help, like lawn care, house cleaning, etc.
It's always wise for homeowners to consult a tax professional with questions about what is and is not eligible to be deducted.
#5 Consider tax implications of home renovations
Specific home improvement projects can directly affect a homeowner's tax bill. For example, solar and wind energy and other energy-efficient home upgrades may be eligible for an energy-efficient property tax credit. Therefore, it's smart to review the energy-efficient property credits if homeowners are considering making energy-efficient changes.
The bottom line
Choosing whether to take the standard deduction or itemize is a critical first step in doing taxes as a homeowner. But getting organized, understanding eligible deductions, and planning ahead for energy-efficient home renovations can result in tax savings, too. When in doubt, it's always best to consult a tax professional with any questions about approaching taxes as a homeowner.
Source: National Association of Realtors