Your Long Island home provides you with many great benefits. It gives you a secure place to live, your family has space to grow, and you’re building equity and credit with every payment. But did you also know your house can provide you with tax benefits, too? The top tax deductions for Long Island homeowners are important to understand in order to get the most out of their homes.
All year, Long Island homeowners work hard to stretch and save a dollar here and a penny there. When tax time rolls around, maximizing your deductions is key to getting the most out of your investment. Here are the 5 top tax deductions for homeowners in Long Island:
Each month, you pay interest on the mortgage you took out on your home. Depending on the size of your mortgage, this can be a pretty sizeable portion of your budget.
If you purchased your home prior to December 14, 2017, you can deduct interest if your home is worth up to $1 million. For homes purchased after that date, the limit is $750,000. This limit does include mortgages on additional properties, as well as any second mortgages you may take out on your primary home.
These limits apply to both single taxpayers and taxpayers who are married filing jointly; the threshold does not increase for married couples as it does with other deductions.
You also can deduct interest from a refinanced mortgage, with the limits dependent upon the date when your refinanced mortgage was issued.
STATE & LOCAL PROPERTY TAXES
State and local property taxes also make up a big part of your monthly expenses as a homeowner, and your tax return is a great time to reap the benefits of paying your part to support your community.
Under the new tax laws, the limits on the amount of state and local property taxes you can deduct have decreased from previous years.
On your tax returns, you now can only deduct up to $10,000 that you’ve paid in state and local income, sales, and property taxes.
For many homeowners, this isn’t that much of a change, but in areas with higher taxes, homeowners will see a difference in their tax returns.
Renting in the United States is at an all-time high, and homeowners are finding new ways to make rental income. Whether it’s renting to long-term tenants or listing it on Airbnb a few times a year, many homeowners are making some extra cash using properties they already own.
You are required to report any income you make from rental properties, but that extra income can be offset by deductions that are available to you as a landlord.
Say, for example, that you made $6,000 in rental income last year, but you spent $10,000 to improve the property. That $10,000 on improvements is deductible from your income dollar for dollar, reducing your overall tax liability.
If you only own commercial or residential property as an investment and not a means to increase your income, any money you put into improving those properties is deductible dollar for dollar on your income.
HOME OFFICE EXPENSES
Do you work from home for your own business? You may be able to deduct portions of your home on your tax returns.
In previous years, employees who worked from home could deduct the portion of their home used as a home office from their taxes; starting in this tax year, however, that’s changed.
You can only deduct your home office from your taxes if you are truly self-employed. Also, your home office must be used only as an office, not a dual-purpose guest bedroom or living room, and has to be used regularly.
However, if you are self-employed and your home office does fall within these guidelines, taking the deduction can help decrease your tax liability.
CAPITAL GAINS FROM A HOME SALE
While you may already know there are some top tax deductions for owning a home, you may not realize you can reap benefits on your tax returns for selling your Long Island home, too.
The IRS’s capital gains exclusion rule exempts portions of any capital gains from the sale of your primary residence from being taxed as income.
If you lived in the home you’re selling as your primary residence for two years within the past five years, the first $250,000 is tax-free for a single person or the first $500,000 for a married couple.
While most people in Long Island are selling their homes to purchase new properties, some do sell in order to pay off debt or add to retirement savings. In most cases, a home sale will fall within the capital gains exclusion rule, so you won’t have to worry too much about accounting for anything over the threshold as income.