Tax deductions

Tax Deductions for Landlords – NerdWallet

You can get federal tax breaks for owning a home if itemizing deductions on your 2021 tax return makes financial sense.

But it’s a bigger “if” than before.

Although homeowner tax deductions can run into the thousands of dollars, claiming them is only worth it if all of your itemized deductions exceed the standard IRS deduction.

The standard deduction for the 2021 tax year is:

  • $25,100 for married couples filing jointly, up $300 from the 2020 tax year.

  • $12,550 for single filers and married filers filing separately, up $150 from the previous year.

  • $18,800 for heads of families, up from $150.

To decide whether to itemize or not, add up the owners and other tax deductions you are entitled to. If the sum is greater than the standard deduction, detail it. Otherwise, take the standard deduction. Here are the tax deductions for homeowners to include in the calculation.

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Mortgage interest

This is usually the biggest tax deduction for property owners who itemize. A portion of each mortgage payment is dedicated to interest on the loan. You can deduct the interest you paid up to a limit that depends on when you took out the mortgage.

  • December 16, 2017 and after: You can deduct interest on up to $750,000 of mortgage debt (or up to $375,000 if you’re married and filing separately).

  • From October 14, 1987 to December 15, 2017: You can deduct interest on up to $1 million of mortgage debt ($500,000 if married and filing separately).

If you refinanced a mortgage, the limit depends on the original date of the old loan. If the mortgage predates October 14, 1987, all mortgage interest may be deductible.

Your mortgage agent will send you a statement each year showing the amount of interest you have paid.

Interest on home equity loans

Interest on home equity loans and home equity lines of credit can be deducted, but only if you spent the borrowed money to improve your home. Before the Tax Reform Act of 2017 came into force in 2018, you could deduct interest even if you used the money for other purposes, such as tuition.

Your home equity loan or HELOC debt counts toward the total mortgage debt limit for the interest deduction. So if your first mortgage exceeds the deductible limit, the interest on the equity in your home will not be deductible.

Discount points

If you are within the limits of deducting all your mortgage interest, you can also deduct discount points you paid at the closing of the mortgage. Some homeowners buy discount points to lower the mortgage interest rate. A discount point costs 1% of the mortgage amount.

The term “points” can be confusing, as some lenders refer to their fees as “loan origination points”. These points are used to pay the lenders’ fees for granting the loan, and they are not tax deductible. Only discount points paid to reduce the interest rate can be deducted.

Property taxes

You can get tax relief for paying property taxes, but there is a limit. You can deduct up to $10,000 ($5,000 if you are married and filing separately) in property taxes in combination with income taxes or sales taxes.

Home office expenses

You can deduct home office expenses if you are self-employed and use part of your home regularly and exclusively for your business.

You can use the IRS’ “simplified method” or your actual expenses to determine the amount of the home office expense deduction. The IRS website provides details on how to determine if your home office qualifies for a tax deduction and offers worksheets for calculating the deduction amount.

Medically Necessary Home Improvements

When calculating your medical expense deductions, you can include the cost of installing health care equipment or other medically necessary home improvements that benefit you, your spouse, or a dependent.

Permanent improvements that increase the value of your home are only partially deductible. The deductible cost is reduced by the amount of the increase in the value of the property.

Many improvements to make a home more accessible, such as building ramps, widening doorways, or installing guardrails and grab bars, generally do not increase the value of a home. house and can be fully deducted.

Mortgage insurance premiums

The cost of mortgage insurance is currently deductible. The deduction includes the amount paid for private mortgage insurance for conventional loans and mortgage insurance for FHA loans. It also includes collateral fees for USDA home loans and VA financing fees for VA mortgages. The amount you paid for mortgage insurance is treated as mortgage interest, according to the IRS.

To claim this tax deduction for the 2021 tax year, the mortgage insurance policy must have been issued after 2006 and your adjusted gross income must be less than $109,000, or $54,500 if you are married and filing separately , on Form 1040 or 1040-SR, line 8b . The amount you can deduct may be reduced if your adjusted gross income is more than $100,000 ($50,000 if you are married and filing separately).

The mortgage insurance deduction had expired at the end of 2017, but Congress extended it to include premiums paid through the end of 2021.

Owner’s fees not tax deductible

Here’s a rundown of expenses homeowners can’t deduct:

  • Homeowners association fees.

  • Transfer duties or stamp duties.

  • Rental to live in the house before closing.

  • Costs of obtaining or refinancing a mortgage, such as loan assumption, credit report and appraisal fees.

  • Deposits, installments or earnest money forfeited.