If you bought a home for the first time in 2019, you probably have questions about filing your taxes. Learn more about filing taxes for the first time as a homeowner.
Buying your first home is a big deal. It’s perhaps the biggest purchase you’ll ever make, and it can bring independence, privacy, self-reliance and stability, as well as setting you on the path towards financial security, freedom and flexibility.
If you bought your first home in 2019, you’ll be filing taxes as a homeowner for the first time this April. You may have heard that first-time homeowners can get a big tax break. Well, we have some bad news and some good news regarding that.
Bad news first: The homeowner tax credit for first-time home buyers is a rule that no longer exists. You can only take advantage of it if you purchased your first home on or before September 30, 2010.
But the good news is that there are still tax advantages to homeownership. The added good news is that you don’t necessarily have to be a first-time homeowner to take advantage of them. You can continue to benefit from homeowner tax advantages for the entire length of time you own your home and even after you sell it. These tax tips for new homeowners will show you how.
You Can Deduct Mortgage Interest and PMI
Under the Tax Cuts and Jobs Act of 2017 (TCJA), you can deduct any interest you paid on your mortgage, as long as you borrowed $750,000 or less. This includes mortgage interest you paid as part of closing costs. If you bought your home on or before December 15, 2017, you’re grandfathered in under the old limit of $1 million, so you can deduct loan interest on mortgages up to that amount. You can take this deduction every year you’re paying on your mortgage, and for subsequent home purchases as long as your loan amount is below the threshold. You can also deduct the interest you paid on a home equity loan up to $100,000, as long as you use that money to improve your home.
If you borrowed for your home with a downpayment of less than 20 percent, you probably have private mortgage insurance, or PMI. You can deduct PMI payments as long as your adjusted gross income is less than $100,000 if you’re married or $50,000 if you’re single.
You Can Deduct State and Local Taxes
You can deduct your state and local taxes, or SALT, from your federal taxes, up to a limit of $10,000 under the TCJA. If you pay your taxes through an escrow account, you’ll see that amount on your Form 1098. If you pay local taxes directly to your municipality, make sure to keep a record of your payments so you can deduct those from your taxes, too.
A caveat: you have to itemize in order to deduct SALT payments, PMI payments and mortgage interest. SALT deductions, and mortgage interest deductions, too, might benefit you at tax time if you live in an expensive, high-tax area. Otherwise, you may be better off taking the standard deduction, especially if you’re married. If you’re single, on the other hand, your mortgage interest, PMI and SALT might easily exceed your standard deduction.
Do You Qualify for a Homeowner Exemption?
In many states, some homeowners qualify for a homeowner exemption or homestead exemption, which can lower your property tax bill, usually by lowering the assessed value of your home.
Who qualifies? Well, that really depends on your local laws. Typically, these things are decided on the state, county or municipal level, and requirements can vary widely. Commonly, homeowner exemptions are given to the elderly, the disabled and veterans, but some jurisdictions give them out to homeowners below a certain income threshold or homeowners who make specific improvements to their property, such as planting a rain garden or a coconut tree. Typically, you do have to use the home as your primary residence in order to qualify.
Some Energy-Efficient Upgrades Still Bring Tax Benefits
You can’t get tax breaks for most energy-efficient home upgrades anymore, but you can still get them for solar panels through 2021. If you had solar panels installed in 2017 through the end of 2019, you can get back 30 percent of your costs in the form of a tax credit. If you install panels in 2020, you can get back 26 percent of the cost, and if you install them in 2021, you can get back 22 percent of the cost.
Home Office Deductions May Be Available, Too
Whether you work from home full-time or just have a side hustle, you may be able to take a business use of home deduction. You can deduct $5 per square foot for up to 300 square feet of office space for a total deduction of up to $1,500. However, you should make sure that your home office is exclusively used for business purposes, and check with a tax professional to make sure you’re meeting the strict guidelines required to qualify for this deduction.
Before you file taxes as a homeowner for the first time, you need to know what tax credits and deductions you qualify for. Homeownership brings many tax advantages on the federal, state and local levels. It’s just one of the many reasons why owning your own home pays off.