Key Highlights
- Tax season just around the corner
- Agents – help clients consider tax deductions homeowners can take on this year’s tax return
There are itemized, standard, business and homeowners’ tax deductions to help tax filers deduct expenses from their gross income to reduce their taxable income.
Standard Deduction of 2020
- $12,400 – Single Filers and Married Couples Filing Separately
- $24,800 – Married Couples Filing Jointly
- $18,650 – Heads of Households
Common Tax Deductions for Homeowners
Mortgage Interest up to Certain Limit
Limit dependent upon when loan originated
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- If mortgage originated any time between October 14, 1987 and December 16, 2017, you can deduct up to 41M in mortgage debt if married filing jointly
- Within these same dates, you can deduct up to $500,000 if married filing separately
- If mortgage originated after December 15, 2017, you can deduct up to $750,000 of mortgage debt if married filing jointly
- If mortgage originated after December 15, 2017, you can deduct up to $375,000 if married filing separately
- Your mortgage servicer will send you an annual statement indicating how much interest you paid for the 2020 tax year
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Mortgage Insurance
You can write off this cost IF and only IF
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- Mortgage insurance contract issued after 2006
- Need to have adjusted gross income below $109,00 if married and filing jointly
- Need to have adjusted gross income below $54,500 if married and filing separately
- This deduction covers the amount paid in private mortgage insurance for conventional loan and amount paid for mortgage insurance premium on FHA loan
- Can also help with guarantee fee on USDA loan or funding fee on VA loan
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Mortgage Points
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- Mortgage points are also known as “discount points,” fees paid to lower the interest rate on the loan
- Viewed same as home mortgage interest so if within the limit of mortgage interest deduction, you’re allowed to deduct the cost of mortgage points
- Mortgage points are NOT to be confused with “loan origination points” and are not deductible
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Home Equity Loan Interest
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- ONLY deductible IF you used the funds to make substantial home improvements
- Can also count toward the mortgage debt limit so you may/may not be able to use this deduction
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Property Taxes
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- For 2020, allowed to deduct up to $10,000 worth if married and filing separately or $5,000 if married and filing separately
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Home Office Expenses
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- If self-employed or working remotely due to COVID, you could use this
- Portion of certain home-related expenses such as home insurance, utilities, repairs and depreciation related to your business
- This is tricky formula so you may want to rely on tax professional for this one
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Also, research state-specific deductions such as the Homestead exemption in Florida and in Connecticut, where qualifying veterans may get exemptions up to $1,500 on property taxes.
Thanks to the Motley Fool Millionacres.
