For New Home Buyers: Homeowner Taxes Explained

For New Home Buyers: Homeowner Taxes Explained

February 5, 2019 Mortgage 0
Homeowner taxes


There’s an old joke that says there are two things in life that are certain: death and taxes. When you buy a new home, it can affect your taxes—what you can deduct and what you owe. The recent tax law changes approved in 2018 will also change what can be deducted and what will be owed in 2019. These tips on homeowner taxes may help you understand how your new home will be included in your U.S. federal tax picture. It’s important to note that I am not an accountant, so please check with your tax professional for any specific advice regarding your individual tax situation.

Recent Changes in Individual Homeowner Taxes

The first big change is that many tax payers may not need to itemize deductions, given that the standard deduction is close to doubling. In 2017, the standard deduction was (rounded amounts) $13,000 for a married couple filing jointly, $9,500 for heads of households, and $6,500 for singles or married individuals filing separately. New starting in 2018, the numbers are as follows:

  • $24,000 for married couple filing jointly
  • $18,000 for heads of households
  • $12,000 for singles or married individuals filing separately

Itemized Deductions to Consider

These higher standard deductions may make it unnecessary for new homeowners to itemize deductions. However, if you and your accountant determine that itemized deductions are the way to go for your family, here are the homeowner itemizations you can apply:

  1. Any deductions not tied to home ownership including charitable donations, medical expenses (over 7.5% of adjusted gross income), business expenses (within taxation allowances and guidelines), and state and local income and sales tax (also within taxation allowances and guidelines)
  2. Property tax up to $10,000
  3. Mortgage interest on up to $750,000 of mortgage debt if your home was purchased after 12/15/2017. If you purchased your home before that date, you can deduct mortgage interest on up to $1 million of mortgage debt
  4. Home Equity Loan interest, only if the loan was used for substantial improvements to your home and if, added to your mortgage debt, does not go above the limits outlined above. If the loan was used for other purposes, the home equity loan interest is not deductible.
  5. If you have a dedicated space in your home that is just used for business and nothing personal, you may be able to deduct some of the square footage. Check with your accountant for amounts.

How Home Selling Affects Taxes

Selling a home can affect your taxes as well. Capital gains on a house sale of $250,000 for individuals or $500,000 for joint filers are subject to taxation.

It is crucial to keep records of major home improvements and improvements (maintenance doesn’t count) in order to reduce the capital gains. For example, if a home is purchased for $100,000 and sold 10 years later for $200,000, there are no taxable capital gains. However, if that same house is sold 25 years later for $500,000, there would be $400,000 of capital gains. If the individual homeowner keeps records for the $50,000 kitchen update, the $40,000 bathroom update, and the $30,000 pool, this would reduce the capital gains to $280,000, and only $30,000 would be taxable.

There are regulations regarding how long you have lived in the house as your primary residence. If you have not owned nor lived in the home for a long time, there are different tax circumstances. Again, it is best to discuss your tax situation with your tax professional. The information listed herein is to the best of my knowledge, taken from information of public record, but your accountant will be able to advise you in the most current and up-to-date tax law.

Homeowner Taxes for Buying Decisions

Understanding how buying a home may affect taxes, often to the home buyer’s benefit, is an important consideration in deciding the right time to buy your dream home. As one of the best mortgage consultants in Dallas, I can help you find a home loan product that is the perfect solution for your personal financing needs. Simply contact me, Jeff Berman “The Mortgage Go To Guy”, at 214-989-7700 or complete the form below.

Jeff Berman “The Mortgage Go To Guy” mortgage broker at Elite Financing Group mortgage company serves the north Dallas suburban area including Dallas, North Dallas, Plano, Frisco, Allen, McKinney, Carrollton, Addison, Richardson, Murphy, Wylie, Prosper, Lovejoy and all of DFW. With over 25 years of experience, Jeff Berman has managed or originated 20,000+ loans in his career and is uniquely qualified to help you too.

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