Tax season is here. Unless you’re a tax accountant, it can be tricky to navigate the process of preparing and filing your taxes. This is especially true if you became a homeowner in 2020. There are certain deductions that are available to you if you qualify, which can save you big on your tax bill. But recent changes in the tax laws mean that you need to examine your options to choose the best path for your unique circumstance. If you’re a North County homeowner, then here’s what you need to know about available tax deductions.
Should you itemize?
The first and most basic question you need to ask yourself is whether or not it benefits you to itemize your deductions. In 2017, the federal government passed the Tax Cuts & Jobs Act which doubled the standard deduction for taxpayers. Married couples who file jointly can choose a standard deduction for $25,1000 ($18,800 for a single person). In some cases, the standard deduction amounts to more than what you’d be able to deduct if you itemize. Let’s take a closer look at what deductions are available so you can determine which route is best for you.
When you first buy a home, the bulk of the early payments you make goes toward your mortgage interest. But be aware that you’re allowed to deduct your mortgage interest payments from your federal and state taxes. For those who recently purchased a North County home, that could be a significant deduction. Be aware that there are limitations. If you secured your mortgage between 1987 and 2017, then the deduction cannot exceed $1 million. Any mortgages secured after December 15, 2017, have a limit of $750,000.
Mortgage insurance is another cost that you can deduct from your taxes. If you’re a recent homeowner who put down less than 20 percent for a down payment, then you’re most likely paying for private mortgage insurance (PMI). The cost of PMI is approximately one percent of the purchase price, so it can add up quickly. Homeowners must meet income qualifications to deduct PMI from their taxes ($54,500 for those filing single and $109,000 for those filing jointly).
If you purchased a North County home in 2020, then you can also deduct the property taxes you paid when you closed. Other fees may be deducted as well, including recordation fees, transfer fees, and origination fees (points).
Consider the SALT caps
Finally, you must consider your state and local taxes (SALT) when determining whether or not to itemize. The 2017 tax act limited the deduction of state and local taxes to $10,000. If you have questions about any deductions that are available to you as a homeowner, then speak with a tax professional.
Contact the Clark & Gilman Team today
Are you interested in learning more about all the benefits of buying a North County San Diego home? Then contact the experts at the Cristine Clark & Jamie Gilman Team at 760-758-1211 or [email protected]. We’re here to answer all your questions and help you achieve your real estate dreams!