In most cases up until this year, buying a home presented a good number of tax benefits in the form of certain deductions. Those benefits still exist, but they have been watered down for some people in some situations. So it pays to know how buying a home in Northern Virginia will impact you next tax season. Even if you’ve already made the decision to buy, it’s good to know what you’ll be facing.
Tax Benefits for Next Tax Season
The benefits next tax season for buying a home in Northern Virginia are still pretty substantial and include these main ones:
MORTGAGE INTEREST DEDUCTION
This is a major tax break available to homeowners, especially in the early stages of mortgage payment when the bulk of each payment goes to interest instead of the principal. So if you’re buying a home in Northern Virginia, this is definitely a tax benefit you’ll want to take advantage of next tax season.
PROPERTY TAX DEDUCTION
Property taxes are inevitable, but with this deduction, you can get some of that money back next tax season in Northern Virginia. Statistics show that the average American household pays slightly more than $2,000 every year in property taxes, and the more you pay, the more you can deduct. Just be aware that you have to claim this deduction in the year you pay the property taxes.
HOME OFFICE DEDUCTION
If you’re a freelancer or are self-employed in some other way and work from home, then you’re in luck next tax season. With the home office deduction, the IRS allows you write off a portion of your office expenses such as heating and lighting costs, water, and Internet and phone. You just need to figure out what percentage of your total square footage the office square footage is and then calculate those expenses according to that ratio from your total expenses. You will have to itemize to take the home office deduction.
Limits/Restrictions for Next Tax Season
Some recent changes in tax law will affect some homeowners and not in a good way economically, for example:
- Formerly, the cap on the principal for mortgage interest deductions was $1,000,000 plus an additional $100,000 for equity debt. Now, however, new mortgages cap at $750,000 for mortgage interest deductions. This won’t affect a lot a people buying homes, but it is something some need to be aware of for next tax season.
- There are also new restrictions on deductions with respect to refinancing. As mentioned, the qualifying mortgage interest deduction formerly included an additional $100,000 for equity debt, usually used for home improvements. This deduction has now been eliminated.
- In the past, if you itemized, you were able to deduct property taxes and sometimes sales tax. Now, with the new changes going into effect next tax season, while you still have those deductions available, the limit is $10,000 for all state and local taxes.
- Also, before the tax changes, if you suffered economic loss due to natural disaster, you could claim a casualty loss deduction. But now this has been done away with except for loss attributable to a federal disaster.
- Finally, there is no longer a deduction for mortgage insurance premiums. And this will be a roadblock to homeownership for those people who are unable to come up with at least a 20% down payment.
So how will buying a home in Northern Virginia impact you next tax season? Probably, mostly for the good (although there are some tax changes that will negatively impact some people). Buying a home when coupled with tax law can be a pretty complicated affair. But we can make at least part of it a lot simpler.