Most Americans will be affected by several tax law changes in 2021 this tax season. For nearly 90% of Americans who claim the standard deduction, the child tax credit expansion will provide a small but positive change in their tax refunds.
In the 2022 tax season, the IRS has not yet announced an official start date, but it typically begins accepting tax returns by the end of January. Your mortgage broker might tell you about these changes, but you should have some knowledge about these changes that are being introduced for this year.
Here is a guide to homeowner’s taxes for 2022
This year, tax deadlines have returned to normal. The tax return deadline for 2021 is April 15, with returns accepted starting on January 31, 2022. Depending on how the pandemic affected them, some people may have a more difficult time filing their taxes this year.
It is likely that you have experienced that the recently reformed tax law lets consumers keep more money. Tax rates have been lowered and the standard deduction has increased.
Taxpayers may itemize fewer expenses (listing their deductions from annual taxes) if the standard deduction is higher. If you don’t earn enough to itemize, standard deductions are better.
HOWEVER, FOR HOMEOWNERS, IT MAY BE MORE ENERGIZING TO ITEMISE ALL OR SOME OF THESE TAX BREAKS:
Unless your mortgage broker has not told you yet, this is what you need to know:
Interest on home equity loans and home equity lines of credit.
- In contrast to the past, you can now deduct only the interest paid on home equity loans used for renovations. Those who plan to renovate will benefit from this change to the 2018 tax law more than others.
- Interest on renovations you can deduct will count toward your total deduction limit of $750,000 for mortgage interest.
- Home equity lines of credit (HELOCs), home equity loans or second mortgages may be labeled as this type of loan.
- In the event that you purchased your home with a conventional loan and put less than 20 percent down, you might be required to pay PMI (Private Mortgage Insurance). You can deduct PMI (Private Mortgage Insurance).
- Although the PMI deduction was eliminated by the 2018 tax reform, it was reinstated in 2020, enabling homeowners to use it going forward and retroactively for 2018 and 2019.
- Your home must have been purchased after 2006 to qualify for this write-off. However, you might still qualify if you recently refinanced. In some cases, your loan officer may be able to drop your PMI if you qualify.
Home loan points
- The mortgage points you paid – charged by your lender to reduce your interest rate – can be deducted from your income. For homes costing over $750,000, point deductions may be limited.
- During the tax year in which your points were earned, you could deduct all of them at once. If you bought your home in 2021, for example, you could deduct gradually, writing off a percentage of your points each year; this is the case if you recently refinanced.
- There are 100 points in a loan. Each point is equal to 1 percent. Origination points do not belong to the loan as they are not deductible.
Interest on mortgages
- The maximum deduction for mortgage interest in 2018 was lowered to $750,000 from $1,000,000. A secondary residence may be included in this deduction. Additionally, you may own a condo, mobile home, or boat as a secondary residence. It’s a good idea to discuss this with your CPA.
- The former deduction amount still applies to homes financed prior to December 15, 2017.
- Your Mortgage Interest Statement or IRS Form 1098 will show all deductible mortgage interest. Even if you don’t itemize on your federal form, you may be able to deduct mortgage interest in states where you must file a state income tax return.
Local and state taxes
- State and local tax deductions (SALT) were also restricted under the tax reform. However, this deduction was not eliminated.
- Taxpayers are only allowed to deduct $10,000 in property, sales, and income taxes for taxes paid in 2021. If you purchased and sold a home last year, you can deduct a portion of the former property’s taxes.
- Unless you live in a high-tax state, you should see a tax benefit in most parts of the country. Nevertheless, itemizing can be complicated since the SALT deduction is only available if the state/local property taxes are combined with either state/local sales taxes or income taxes.
Improving the house
- In addition to equipment costs and installation fees, home renovations considered a medical expense can be fully deducted. As a related matter, you may be able to deduct medical expenses that exceed 7.5 per cent of your AGI.
- Home renovations that are essential for medical reasons will include ramps, stairway and doorway modifications, support bars, new outlets or fixtures, and warning systems, so long as they don’t decrease the value of your home.
- Solar panels, solar water heaters, and other forms of solar energy could also qualify for a 26 percent credit.
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