With tax season upon us, Chattanooga-area homeowners are reminded about changes to the tax code that went into effect in 2018. Despite the changes, it’s important to remember that homeowners can still take advantage of many tax incentives.
Homeowners who itemize their federal income tax deductions can deduct 100 percent of their mortgage interest payments on a first and second home up to a maximum mortgage amount of $750,000 for loan balances taken after Dec. 16, 2017.
The limit remains $1 million for mortgages that were established before this date, as well as for homeowners who were under contract before Dec. 15, 2017.
Taxpayers can also deduct up to $10,000 of state and local taxes, including property taxes and the choice of income or sales taxes.
Plus, households can take a deduction on a home equity loan or home equity line of credit if the loan is used for substantial home improvements, such as remodeling.
And when homeowners decide to sell their home, many don’t have to pay capital gains tax on profits from the sale. Married couples who have owned and occupied their principal residence for at least two of the past five years don’t have to pay any taxes on the first $500,000 in profits from the sale of their home. For single filers, the first $250,000 in profits will be tax free.
Mortgage insurance premiums offer another potential deduction for homeowners. Generally, people who purchase a home without putting 20 percent down must buy mortgage insurance, and those premiums can also be deducted from taxable income.
Buying and owning a home can offer significant tax savings. Many homeowners rely on these benefits to help offset the costs of homeownership, while prospective buyers take them into consideration as an advantage over renting.
It’s important to keep in mind that the tax law did create important changes that could impact individuals and small businesses. You should always consult a qualified professional adviser for questions about filing your tax returns.
Homeowners also can review Internal Revenue Service Publication 936, which explains the rules for deducting home mortgage interest. You can access this document at www.irs.gov/pub/irs-pdf/p936.pdf.
Visit the Home Builders Association of Greater Chattanooga at HBAGC.net to find out about homeownership opportunities in the Tri-state area.
Note: This information is for general guidance only and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind, nor should it be construed as such. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.