7 Things Every Homeowner Should Know for Tax Day 2019
It’s that time of year again. The time where we either pull out the cumbersome, confusing forms to file our taxes—or look to an online service to do most of the heavy lifting for us. (Hello, Turbo Tax.)
Last year’s major tax changes seemingly doubled or tripled the annual filing headache on top of all of the additional requirements for homeowners. In an effort to help you understand what matters and what doesn’t, we spoke with a few experts to highlight important tax issues for tax year 2018 and how to prep for future filings:
1. Dig up those receipts
For starters, don’t overlook something as simple as the record of a purchase.
“Save your receipts for everything you purchase that improves or decorates your house,” says Sotheby’s Los Feliz agent Kat Nitsou, who understands how real estate taxes affect overall ownership. “Depending on the tax rules in your city and the capital gains that might apply when you go to sell, all of these expenses could be deducted.”
And those deductions can add up fast. Even a small renovation can run up thousands of dollars in expenses, but it’s important to understand how and when those deductions can be taken.
2. Speaking of deductions
In terms of the nuts and bolts of the ownership process, there have been significant changes in the amounts you can deduct. Massachusetts CPA Frank J. Harrison notes that the most significant one is the reduced home mortgage interest deduction, which now maxes out with loan principals of $750,000 for couples filing jointly and $375,000 for married taxpayers filing separately (these used to be up to $1 million and $500,000 respectively for debt taken on before Dec. 15, 2017).
The new tax law consolidates home equity loans into this grand total too. Harrison adds that these loans have to be specifically used for “home improvements” in order to be deductible as acquisition debt. The IRS has specific guidelines on this, so read carefully before deciding to sign on the dotted line.
3. Watch out for new taxes
State and local taxes aren’t getting any easier either. For example, in Massachusetts, the Cape Cod real estate market is poised for a dramatic shift when a new tax on vacation property earnings (such as Airbnbs) goes into effect in July.
4. Note the standard deduction
Perhaps easing all of this just a bit is the substantial increase in the standard deduction. For tax years 2018 through 2025, the standard deduction is $12,000 for single filers and $24,000 for those filing jointly, representing an almost 100 percent increase from 2017. However, the $4,050 personal exemption was eliminated through tax year 2025 as well.
Above all, if your tax situation goes above and beyond the normal homeowner situation, it’s certainly worth hiring a tax professional to help determine your best outcome when it comes to overall liability.
Three easy ways to cut your tax bill
- Although more popular in aggressive, seasoned markets like NYC, tax abatements do exist across the country in various formats as well. For example, in Portland, Oregon, the HOLTE program helps homeowners receive up to a 10-year property tax exemption for certain structural improvements.
- “Talk to your accountant to see if part of your house can be used as a home office for your business,” Nitsou says. “Depending on what you do, many of us work from home even at ‘off-hours,’ so why not see if it is possible to get a deduction if you can?”
- Check if the equity in your house and your tax returns help you borrow money to invest. “Every year before I file my taxes, I have a meeting with my mortgage broker and my accountant to see if I can borrow money to invest in property that year,” Nitsou adds. “If I can’t borrow money this year, which is more than often the case, at least I know what I need to work towards for next year and try again. Having a clear idea of where you currently stand and where you want to be is incredible knowledge.”