Just a few years ago, the Tax Cuts and Jobs Act (TCJA) of 2017 greatly changed existing tax laws that affect homeowners. How your personal tax bill has been affected by the changes in the law depends on your income, where you live, how much you spent (or plan to spend) on a home, and whether you decide to itemize on Form 1040’s Schedule A or take one of the standard deduction amounts.
The Inflation Reduction Act of 2022 has a beneficial financial impact on select energy-saving improvements to your home for the 2023 tax year. The majority of the provisions of that act in regard to energy-saving elements are in effect for the 2023 tax year.
Once again, the standard deduction has increased slightly for 2023 and for individuals is $13,850, and for married couples filing jointly is $27,700. (Those numbers are different for individuals older than 65, legally blind or heads of households.) Because these standard deductions have increased, itemizing deductions may no longer make financial sense for some taxpayers.
Here are some basic home-related tax facts you should be aware of in light of the changed tax laws. For clarification, forms, and publications, visit the Internal Revenue Service at www.IRS.gov. Be sure to consult a tax professional for complete information applicable to your specific situation.
TAX FACTS: Interest payments on your original mortgage up to $750,000 for joint filers and $375,000 for others —assuming the mortgage isn’t larger than the home’s purchase price and improvement costs—are deductible for most homeowners. This $750,000 cap only affects homes purchased after Dec. 14, 2017, until 2026. (The $750,000 is an overall limit on “home acquisition” mortgage debt for purposes of deducting interest on up to two homes.) Mortgage interest on a second home is also deductible, as explained in the VACATION HOMES section. If you own a third home for personal purposes, the mortgage interest is not deductible. Interest on home equity loans (see EQUITY LOANS section) is often deductible with some limitations. Refer to IRS Publication 936 “Home Mortgage Interest Deduction” for more details.
HELPFUL HINT #1: For many taxpayers, it may be more advantageous to take the standard deductions than to itemize. If you do not itemize, you cannot take the mortgage interest tax deduction. However, if your total itemized deductions are less than the standard deduction, it will not make sense to itemize.
HELPFUL HINT #2: For mortgages taken out more than 90 days after a home purchase, your interest deduction is usually limited to the amount of the original (acquisition) mortgage plus $100,000. However, if you use the new mortgage to improve your home, you can add that amount to the deduction limit, up to the $750,000 cap for couples who are married and filing jointly and $375,000 for others.
This is just a summary of complex laws. Be sure to work with a qualified tax professional.
We welcome the opportunity to put our tax expertise to work for you. To learn more about how our firm can help advance your success, don’t hesitate to contact Kathy Corcoran at (302) 254-8240.
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