The tax code gives incentives to both new and existing homeowners to help offset the costs of buying a home. Here’s what you can deduct when you file for 2017 as well as what’s changing under the new tax law starting in 2018.
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What tax deductions can homeowners take for their 2017 taxes?
The following deductions are available for 2017. Unless otherwise stated, these are itemized deductions requiring you to file a Schedule A that only kick in if the total amount of your itemized deductions exceeds your standard deduction.
- Mortgage interest. The interest portion of your mortgage payments is deductible for the first $1 million of debt used to purchase your home.
- Home equity interest. If you bought a fixer-upper and took out a home equity line of credit to fund your renovations, interest on the first $100,000 of the loan is deductible.
- Property taxes. Property taxes are deductible in full.
- Mortgage points. Mortgage points paid to reduce the interest rate on an eligible mortgage are also deductible.
- Home office. If you work from home, you may be able to claim the home office deduction using either a proportionate amount of your costs of maintaining the home or a $5 per square foot standard deduction. If you use your actual costs, you may have to add any depreciation expense you claimed to your taxable income (recapture) in the year you sell your home. If you use the standard deduction, no recapture is required. If you’re self-employed, this expense is a Schedule C business expense and does not require you to itemize.
- Moving costs. If you are buying a home as part of a job move, your moving expenses may be deductible. For you to be eligible for this deduction, your new job location must be at least 50 miles from your old home, and you must work full-time in the new location for at least 39 out of 52 weeks (78 out of 104 if self-employed). Moving costs are a separate above-the-line deduction and don’t require itemizing.
What’s changing for homeowners with the 2018 tax law?
While most deductions are typically available every year you own your home instead of just the first year, there are a few changes that will apply when you file your taxes for 2018 and beyond because of the new tax law.
- The mortgage interest deduction cap is now the first $750,000 of a mortgage. However, mortgages taken out before December 15, 2017 are grandfathered into the old cap.
- Home equity loan interest that is not for the purchase of a home is no longer deductible with no grandfathering.
- Property taxes remain deductible, but there is now a cap of $10,000 in combined property taxes and other state and local taxes.
- The home office deduction is no longer available to employees because unreimbursed work expenses are no longer deductible. This change does not affect Schedule C filers.
- The moving expenses deduction was eliminated for all filers.
Talk to your tax professional
Keep in mind that this is a general overview and additional requirements apply to most of these deductions. You may also be eligible for additional, less-common deductions. To determine your eligibility and ensure you receive all the deductions you’re entitled to, talk to a tax attorney or accountant.