Your Guide to 2019 Tax Deductions

by | Feb 28, 2020

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Tax season is officially upon us. Millions of taxpayers are getting organized and trying to make sense of the tax code. It’s not easy to do since the tax code is thousands of pages long.

In addition to that, the Tax Cuts and Jobs Act of 2017 has ushered in many changes to the tax code. Many tax professionals and the IRS are still adjusting to those changes.

The key to doing your taxes is understanding all of the tax deductions available on your income tax return. Read on to learn what the common tax deductions are that you can take in 2019.

What is a Tax Deduction?

A tax deduction is an expense that can be subtracted from your gross income. This lowers your taxable income. This can lower the total amount of taxes you owe if your deductions drop you to a lower tax bracket.

A tax deduction is often confused with a tax credit. A tax credit is a direct reduction in the amount of income tax owed.

For example, if your income tax rate is 24% and you have a $1000 deduction, you save $240 on your income taxes (24% of $1000).

Now, if you have a tax bill of $5000 and you have a $2500 tax credit, your tax bill will be lowered to $2500.

Tax Tips for Homeowners

The housing market may be shifting away from homeownership, but there are many advantages that renters miss out on. Most of those advantages come in the form of tax deductions. These tax tips will outline what tax deductions you can apply to your taxes.

Is Property Tax Deductible?

The recent tax reform legislation brought many changes to the tax deductions for homeowners.

 Prior to the legislation, homeowners were able to deduct state and local taxes (SALT) from their federal taxes with no limit to how much you could deduct. This includes local property taxes.

Is property tax deductible? It is, but there is now a limit as to how much you can deduct. If you’re filing jointly, you can deduct up to $10,000 in state and local taxes. You can only deduct $5,000 of your property tax bill if your filing status is single or married filing separately.

Those who were affected the most are people who live in states with high property taxes, such as New Jersey, Connecticut, California, and New York.

Interest and Home Improvement Deductions

There are many questions that homeowners have about deducting expenses and interest. The mortgage interest deduction is the most common deduction that homeowners take.

Charles E. Kunz, CPA/PFS, CFP has this to add about mortgage interest, home improvement, and home equity loans as they relate to tax deductions. 

Remember, a tax deduction is an item that can be legally subtracted from taxable income.

Mortgage interest expense on acquisition indebtedness (debt incurred in acquiring, constructing or substantially improving a qualified or principal residence and is secured by that residence) is tax-deductible generally up to the interest on a home mortgage debt of $750,000 except for home acquisition indebtedness incurred on or before Dec. 15, 2017 for which the limitation was $1,000,000.

Home improvement expenses (not ordinary home repairs) on your principal or secondary residence are added to the basis of your home thereby reducing any gain that may result in the ultimate sale of your home. These expenses are, therefore, only deducted in the year of the sale of the property, not necessarily in the year incurred.

Home equity loans are not deductible for the years 2018 to 2025.  However, if the loan though labeled a home equity loan is used to buy, build or substantially improve your home and is secured by that home and, together with the home acquisition indebtedness, doesn’t exceed the $750,000 limitation, the interest thereon would be deductible.

Taking the Standard Deduction or Itemized Deductions

One of the most sweeping changes that were applied in the Tax Cuts and Jobs Act was to the standard deduction. 

For the 2019 filing year, the standard deduction is $12,200 for single filers and those married filing separately. For married couples filing jointly, the standard deduction is $24,400. Head of household filers have a standard deduction of $18,350.

With these major changes, you need to decide if you’re better off taking the standard deduction for itemizing your tax deductions. It’s estimated that about 13.7% of taxpayers will need to itemize.

If you’re not sure, calculate your total tax deductions. If your deductions are more than the standard deductions, then itemize. You’ll need to fill out Form Schedule A to itemize your deductions.

Tax Credits for Homeowners

Now that you know what the tax deductions are for homeowners, you should know if there are any tax credits you may qualify for.

Did you make energy-efficient improvements to your home? You may be able to qualify for a tax credit. For example, a solar energy water or electric system may be eligible for a tax credit.

Isn’t there a tax credit for first-time homebuyers? There used to be, but it ended in 2010. The tax credit was implemented in 2008 in order to encourage homeownership in the wake of the economic crisis.

Some states still offer tax credits for first-time homebuyers. Check your state’s programs to see if you can lower your state taxes. Unfortunately, it won’t apply to federal taxes.

Bear in mind that tax credits are temporary. They tend to be in effect for only a few years. Before you make any improvements to your home, check to see if you’d qualify for any credits.

Property Tax Deductions Make a Big Difference

Have you wondered if property tax or mortgage interest is deductible?  Those questions are commonly asked by homeowners since they relate to tax deduction.  Keep in mind, you can deduct both property taxes and mortgage interests.  

These and other deductions can go a long way to lower your tax bill. Take a look at these mortgage tools that you can use to lower your bills.

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