What are the tax benefits of owning a home? Plenty of California homeowners are asking themselves this question right about now as they prepare to file their taxes. Let’s look at some of them:
- Mortgage interest: This deduction is itemized, so for this to work in your favor, all your itemized deductions need to be greater than the new standard deduction, which the Tax Cuts and Jobs Act nearly doubled ($12,400 for individuals and $24, 800 for married). There are additional deductions for those aged 65 and older and head of household. If your mortgage went into effect before Dec.15, 2017 you can deduct interest on loans up to $1milliion. If acquired after this date, you can only deduct the interest on the first $750,000.
- Property Tax: This deduction is capped at $10,000 for those filing jointly, no matter how high the taxes are. Remember that for some your property taxes may be included in your monthly mortgage payment.
- Private mortgage insurance: At the moment, this tax is deductible, but Congress needs to approve an extension for 2021.
- Energy efficient upgrades: Credits for solar electric and solar water-heating equipment are available through Dec.31, 2021. The SECURE Act also retroactively reinstated a $500 deduction for certain qualified energy-efficient upgrades such as exterior windows, doors, and insulation. This is a credit, so no worrying about itemizing. However, the percentage of the credit depends on the expenditure.
- A home office: Unfortunately, if you are a W-2 employee, you’re not eligible for the home office deduction under the CARES Act even if you spent most of 2020 in your home office.
- Home improvements to age in place: These improvements need to exceed 7.5% of your adjusted gross income. You will need a letter from our doctor to prove these changes were medically necessary.
- Interest on a home equity line of credit: You can deduct only up to the $750,000 cap, and this is for the amount you pay in interest on your equity line and mortgage combined.
The real benefit of homeownership here in California is in the wealth accrual v, but these tax benefits add up to savings that contribute to your overall wealth total.
If you are looking for some tax benefits and wealth accrual in your future, but do not qualify for a conventional loan, call Sun Pacific Mortgage at 523-2099 to discuss the possibility of private funding. We have a 33-year history of helping thousands of folks just like you achieve their dream of homeownership.
Note: For exact deductions for 2021 you want to consult with your licensed CPA or tax representative.
