Friday March 1, 2019
Owning your own home in Rochester comes with many perks, from the pride of ownership to increased net worth. However, when it comes to buying a new home, reaping the tax benefits is a huge bonus. There are a variety of tax benefits available to homeowners that can add up, saving you thousands over the life of your home!
With the Tax Cuts and Jobs Act of 2017 in effect for the 2018 tax year, it’s more important than ever to make sure you’re familiar with the tax deductions available to you as a homeowner. We recommend consulting with a tax professional to determine if you’ll receive a greater benefit filing with the standard deduction than filing an itemized return.
According to the official IRS Publication 530, here’s an outline of the tax benefits you receive when you own a home in Rochester:
Homeowners can deduct the mortgage interest expenses paid in 2018 on up to $750,000 ($375,000 if married filing separately) of mortgage debt from your income taxes, though when you itemize these deductions, you forgo the standard deduction of $12,000 for individuals or married couples filing individually, $18,000 for head of household and $24,000 for married filing jointly. If you purchased your home prior to December 15, 2017, the deduction is available on up to $1 million.
To be deductible, the interest you pay must be on a loan secured by your primary residence or a second home. The deduction is available whether it is a first or second mortgage, home improvement loan, home equity loan or a refinanced loan. However, one of the biggest changes from previous tax years is that the loan proceeds must have been used to buy, build, or substantially improve your home to be deductible, and the loan must have been taken out on the property that will be purchased, built, or improved.
Capital appreciation can be described as an increase in the price, or value, of your home. When your home’s value increases and then you sell your home for more than you purchased it for, those gains are not taxed at the federal level if that home was your primary residence for at least two of the five years prior to selling it. If this describes your situation, then you can exclude up to $250,000 in home appreciation (or $500,000 if filing jointly) when figuring out your capital gains for the year! This is extremely beneficial in our current real estate market, as home values are on the rise throughout the area.
Closing Cost Fees
If you purchased your home in 2018, you may be eligible for deductions related to your closing costs. Select costs are deductible, including:
- Points, or loan origination fees, you purchased when obtaining your mortgage, including any points the seller may have purchased for you. Typically, you can’t deduct the full amount of points in the year paid - they are prepaid interest, so you generally must deduct them over the life (term) of the mortgage. However, you can deduct the full amount of points in the year paid if you meet a variety of tests, outlined on page 5 and 6 of the IRS 2018 Publication 530.
- Prepaid mortgage interest that appears on your Settlement Statement.
- Prepaid property taxes you paid at closing.
Real Estate Taxes
Another portion of your housing payment that is deductible are state and local real estate taxes. These taxes are deductible regardless of whether they’re paid through an escrow account as part of your mortgage payment, or paid directly to the taxing authority.
If you purchased your new home in Rochester in 2018, you can also deduct the real estate taxes you paid at closing. These will not be on the 1098 form received form your mortgage lender, so be sure to check your settlement (closing) statement.
The total deduction for state and local taxes, including real estate taxes, is limited to $10,000 (or $5,000 if married filing separately).
Mortgage Interest Premium (MIP or PMI)
With the new tax law, homeowners can also expect to see a change in the tax status of any private mortgage insurance (PMI) they have to pay. That’s because private mortgage insurance (PMI) premiums are no longer tax deductible. That itemized deduction expired on Dec. 31, 2017, and it’s unknown when — or if — it will be reinstated. To fight for this deduction for next tax season, contact your Congressional representatives and let them know it is important to your family!
Medical Home Improvements
If you made home improvements that were required for medical care in 2018, you may be able to deduct some of them on your taxes. For the 2018 tax year, you can deduct the portion of your expenses that are more than 7.5% of your adjusted gross income (AGI).
If you meet the expense requirement, then equipment that does not increase the value of your home can be fully deducted, such as ramps, modified stairways and doorways, railings and support bars, warning systems and more. The expensive of maintaining and operating medically required equipment installed in the home, such as electricity, can also be deducted.
Any equipment that is considered medical that does increase the value of your home is deductible, but only the different between the expense and the increase in value in your home. For example, construction costs to install a hot tub for hydrotherapy purposes may be eligible for partial deduction depending on the difference between the cost and increased home value, as well as how it is used on a regular basis.
The Final Word
At Faber builders, we strive to say up-to-date on laws and regulations, but we know we’re not accountants! Due to the various restrictions and conditions regarding tax benefits, it is important to consult with your tax advisor or accountant to fully understand the tax benefits available from owning a home in Rochester.
However, if you’re ready to reap the benefits of homeownership, from tax savings to increased net worth, we can help! To find your new home in Rochester, visit www.faberbuilders.com to learn more about our communities and available homes.