The real estate market has been especially active in recent years, and along with that, there have been revisions to the home-related tax rules. Unfortunately, taxpayers aren’t always aware of the updates until after they’ve filed their returns or made some mistakes.
Whether you bought or sold a home, or even refinanced it’s more important than ever to understand how the tax rules apply to homeownership. While mortgage companies will report information regarding taxes to both homeowners and the IRS with Form 1098, the interest and points on those statements aren’t necessarily deductible. This overview can help you learn what you need to know!
Recent Changes to the Homeowner Tax Rules
Mortgage insurance premiums are still deductible for the entire 2021 tax year. But in order for homeowners to take advantage of this benefit from the extended tax law, they need to itemize their deductions.
Another point to keep in mind is that the mortgage interest deductions now come with new loan amount limits. Taxpayers aren’t able to simply claim deductions on the full amount of interest that’s being reported on their Form 1098. Home mortgages started on or after December 15, 2017 can have the interest deducted on loan amounts up to $750,000. Mortgages that started before that date have a $1 million limit.
Will You Avoid the Tax Consequences?
You’ll also need to consider whether your circumstances fall outside the standard procedures of a Form 1098. You may have received home equity proceeds. Using those funds to build, buy, or make significant improvements to a qualified home can still be tax deductible. If you applied the funds to something else, though, whether for college expenses or debt consolidation, then you won’t be able to claim that deduction. Taxpayers need to be able to prove how that money was utilized during the year, as well as any previous years too.
The same can be said for individuals who refinanced a home in 2021. Be sure to review your mortgage settlement statement. Mortgage points also have a unique place in the tax code. In general, the points paid to refinance are deductible that year, but you could be looking at greater restrictions than with your mortgage interest.
You may only have one Form 1098 or multiples! Either way, you’ll want to make a note on the form to state what the loan is for and help ensure you’re claiming all of the home-related deductions properly.
Let’s Get Your Tax Return on the Right Track
The tax rules and regulations are constantly changing, but when it comes to homeownership, these revisions can be especially complicated. That’s why it’s helpful to get a fresh set of eyes on your tax forms to make sure everything is set. Working with your local CPA and tax planning professionals will help ensure that nothing gets overlooked. After all, no one wants to deal with surprises down the road.
Avoid the risks of an audit—or overpaying with your filed tax return. Our team at NSO & Company is always happy to connect with new and existing clients to discuss the tax implications for homeownership. If you’d like to schedule a consultation, please don’t hesitate to reach out!