ElectroFile Income Tax Service   Income Tax Service
5200 W Market St
Greensboro, NC 27409
  Terry Hough, President Terry Hough

January 14, 2019

13 Things Homeowners Should Know

Changes to deductible mortgage interest

Your mortgage is deductible, but you can only claim the deduction if you choose to itemize. If you bought your home in 2018, you can deduct the interest paid on mortgages up to $750,000, per the Tax Cuts and Jobs Act (TCJA). The previous limit was up to $1 million. If you bought your home or were under contract by December 15, 2017, and closed by April 1, 2018, the new limit doesn't apply to you.

Property taxes are capped for 2018

Homeowners used to be able to deduct all of the property taxes they paid over the course of a year, but now that deduction is limited to $10,000 and that limit includes state income taxes, too. That combined $10,000 deduction limit applies to your state and local property taxes and personal state and local income taxes.

Earn non-taxable income for renting your home out for 14 days

You can rent out all or part of your home for up to 14 days per year and all the rental income you receive is tax-free, no matter how much you earn.

Moving expenses are no longer deductible

Previously, taxpayers could deduct moving expenses if they met the IRS criteria of moving at least 50 miles from their old home. For 2018, moving deductions are eliminated for everyone except individuals in the armed forces.

Casualty losses deductions suspended until 2026

Prior to 2018, taxpayers were able to deduct any casualty losses not reimbursed by home insurance, such as damage from a fire, theft, accident, or a natural disaster. However, for 2018 through 2025, TCJA suspends this deduction with one caveat: if the damage occurred in an event officially declared a major disaster by the Federal Emergency Management Agency (FEMA), such as the recent Camp Fires in California or Hurricane Michael in Alabama, casualty losses may still be deducted. (FEMA's list also includes less catastrophic events, so it's worth double-checking to see if the damage was caused by an official 'major disaster.')

Say goodbye to deductible interest on home equity loans

The new tax law suspends the deduction for home equity interest from 2018 to 2026. There are several exceptions to this new law, If the loan is used to buy, build, or substantially improve your home, then you can still write off the interest, but if you are using the loan to pay off credit card debt, you are out of luck. Deductible home improvements projects include additions, a new roof or kitchen renovations.

Homeowners can exclude gains from a residential sale

Did you sell your home and make a killing this year? That's great!. And it gets even better: in many case you don't have to pay taxes on gains from the sale of your primary residence. Single filers can exclude up to $250,000 and joint filers can exclude up to $500,000.

Keep receipts to reduce future taxable gain

What if you stand to profit too much on your home sale and go above the $250,000 limit for singles filers and the $500,000 limit for joint filers? Keep all of your receipts for the improvements and additions you do for your home, You might keep your house 25 years and rack up a lot of receipts, and all of the improvements you do will add to your cost basis, and reduce your taxable gain.

No more tax deductions for occasional work-from-home employees

In the past, home office tax deductibles were available to all employees, not just those who were self-employed. Prior to 2018, employees could deduct any business expenses as long as the total cost was greater than 2 percent of your adjusted gross income. For 2018, though, employees cannot write off unreimbursed employee expenses, including home office use along with auto and travel expenses, and work clothes.

Self-employed taxpayers can still deduct home office expenses, though

If you are a self-employed or an independent contractor who conducts your principal business in one area of your home (read: an office space that's entirely your own and the kids don't do their homework there, too), then you can write it off on your taxes. The IRS makes this itemized deduction simple by allowing the calculation of $5 per square foot of home used for business (maximum 300 square feet).

Solar panels still offer great tax credits

Homeowners can take a tax credit for installing solar panels used to generate electricity or to heat water. The tax credit is 30 percent of the costs to buy and to install the solar energy equipment. This Residential Renewable Energy Tax Credit is applicable for solar water heating, small wind turbines, fuel cells, and geothermal heat pumps as well. But hurry because the tax credit decreases to 26 percent in 2020.

Mortgage points are deductible

Certain mortgage points that you paid when you purchased the house (or those that the seller paid for you) may be deductible if you meet certain requirements. These requirements include that the loan is for your primary residence, paying points is usual for your area, or the loan was used to buy, improve, or build your home under IRS guidelines.

Write off medically-necessary home improvements

If you need to add ramps or widen a doorway in your home to accommodate a dependent or an ailing parent in a wheelchair, those improvements can be deducted from your income as medical expenses if they are medically necessary. Taxpayers who want to take advantage of this deduction must itemize their tax return and must exceed 10 percent of their adjusted gross income.

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All information provided is general in nature and intended to create awareness, not to address the specific circumstances or concerns of any individual or entity. Although we try to provide correct and timely information, we cannot guarantee the accuracy of any information or that such information will continue to be accurate in the future due to the changing nature of the tax laws. Before acting on any of the information provided here, you should consult with a professional advisor who knows all of the unique facts and circumstances pertinent to your particular situation.