This year's federal income taxes are due on Monday, April 18, 2022 and many of us are scrambling to submit them on time. If you are a homeowner, there are tax deductions and credits that you may benefit from. A great resource to consider is a video on Realtor.com from February 17, 2022.
Home values have been rising at historical rates. If you sold your home in 2021, you may be eligible for a capital gains tax deduction if you sold your home for a profit. An article on Forbes.com, written by Kate Ashford and Benjamin Curry, states, "You may be able to exclude up to $250,000 of that gain from your income, or up to $500,000 if you and your spouse file a joint tax return." To qualify for this deduction, you must pass the "ownership test" and the "use test." These tests require you to have owned the property as your home, or main place of residence, for two of the past five years before you sold it.
In the past, mortgage interest deductions have been a long-standing benefit of owning your own home. If you took out a mortgage on your home before December 15, 2017, you are allowed to deduct the mortgage interest. The more recently you've owned your home, the better the deduction. Your mortgage interest deduction is capped at $10,000.
An additional tax deduction you can take as a homeowner is your property taxes. However, in order to take this deduction, you must itemize your deductions. The itemized list of deductions on your tax return must be higher than the standard deductions to be beneficial. For some homeowners, this is not beneficial.
Another available tax credit is the Residential Energy Efficient Credit which you can take until the end of 2023. The credit is for those who have solar water-heating equipment and solar electric in your homes. Energy efficient homes have been a hot commodity. If you are practicing energy efficiency in your home, this is a nice reward.
As a homeowner, you can deduct the interest from your private mortgage insurance, or PMI. This is thanks to the Mortgage Insurance Deduction Act of 2021. Certain credits and tax deductions were going to expire in 2020. This Act reinstated the PMI deduction. This may really benefit you if you are a married couple who is under 65 years of age, as it may help pop you over the $25,100 standard deduction.
Having a home office may also give you a tax deduction. If your home is your primary place of work, and you are self-employed, you can deduct five dollars per square foot, up to 300 square feet. This is equivalent to a 10-foot by 30-foot room. The maximum deduction is $1,500. Unfortunately, you are not eligible for this tax deduction if you receive a W-2. Many of you W-2 employees think this is unfair, because you worked from home during the Covid-19 pandemic. Some of you are still working from home, taking up valuable space in your homes, and not receiving a tax deduction.
It is extremely important to discuss these homeowner's tax benefits with your tax consultant. A professional tax preparer can help you take as many tax credits and deductions as possible. It is certainly a great time to be a homeowner. With home values appreciating and tax advantages of owning your own home, you are able to put more money in your pockets.