Income Tax Breaks for your Home

It is a good time to chat about some tax breaks associated with a personal residence since the real estate market remains hot for a variety of reasons.  According to companies like SoFi, some people are motivated by the historic low mortgage rates either to buy a home or to refi an existing mortgage.  Others, having spent a lot of time working from home because of the pandemic, wish to enlarge and/or remodel their home.  Some people are also buying a second home.  Interestingly, mortgage interest paid for boats and motor homes may be deductible provided they have a toilet, and cooking and sleeping arrangements.  Of course, this interest must still meet the other deduction requirements.  As a side note, mortgage interest may not be deducted on more than two homes.

Mortgage interest is deducted as an itemized deduction.  Itemized deductions also include medical expenses, state and local taxes and charitable contributions – each subject to their own limitations.  It does not make sense to use your itemized deductions if your standard deduction is larger.  If you are unable to itemize or go “long form”, your mortgage interest may not be of any value on your tax return.  As for most tax deductions, limitations do exist on the size of the home loan and the use of the loan proceeds as to what may be deducted for the mortgage interest.

Business owners may deduct expenses associated with the regular and exclusive business use of their home.  Such expenses are deducted typically more favorably as a business deduction than as an itemized deduction.  These expenses may include improvements made to your home.

The deduction for working from home as an employee was unfortunately eliminated in 2017.  But you may have a win-win situation if your company reimburses you for your home expenses.  The reimbursement is not taxable income to you but is deductible to the company. 

Various ideas written above were taken from the August 8, 2020 WSJ article written by Laura Saunders titled “Home Is Where The Tax Breaks Are.”

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Mark Bradstreet, CPA

–until next week.