San Antonio Express-News (Sunday)
New home sales are not slowing down
What are the tax benefits of owning a home? Look no further than this complete guide of all the 2020 tax breaks homeowners should be aware of.
A new year often marks the beginning of a new life chapter. In the wake of the COVID19 pandemic, more Americans are interested in purchasing homes. According to the National Association of Home Builders’ (NAHB) latest Housing Trends Report, survey responses show that the share of Americans who are considering the purchase of a home in the next 12 months increased in the fourth quarter of 2020.
The survey reports that interest among Americans who are considering purchasing a home increased by four percentage points higher than a year earlier. The change in interest represents the largest year-over-year gain in the three-year history of the survey question. The gain shows the coronavirus outbreak continues to impact Americans’ propensity to want to buy homes.
In the greater San Antonio area, new home sales are up substantially. Our Builder and Remodeler members have said that their activity and sales in the first quarter of 2021 have been exceptional.
Our members are seeing challenges with the steep rise in lumber costs and the delays in construction due to labor and material shortages. After the snow and ice storm in February that required business to close and for people to stay in their homes, more and more Buyers are looking for homes that fit their family’s needs.
Millennials are the generational group that stands out in their intent to buy a home. Between the fourth quarters of 2019 and 2020, the share of millennials planning a home purchase rose eight points to 27 percent. The share increased six points to 18 percent among Gen Xers, three points to 16 percent among Gen Z, and was flat among baby boomers.
When it comes to first-time prospective home buyers’ the interest among different generations shifts dramatically. The share of prospective buyers who are buying a home for the first-time declined slightly at the end of the year, except for boomers. Among the boomer generation, the share of first-time home buyers rose from 20 percent to 25 percent in the final quarter of 2020 compared to a year earlier.
Geographically, the share of adults with plans to buy a home rose in all four regions during this period, led by the Northeast (up nine points to 19 percent) and the West (up six points to 18 percent). Across regions, significantly fewer prospective buyers in the Northeast (55 percent) are 1st-timers compared to a year earlier (65 percent). The share was flat in the West and changed slightly in the Midwest and South.
More than a third (37 percent) of perspective home buyers expect that finding the right home will get easier in the months ahead, compared to less than a quarter (23 percent) a year ago. The improvement in buyers’ perceptions on availability reflects the fact that more new and existing homes were sold in 2020 than any year since 2006.
For more information about buying a new home or to find a Builder, Remodeler, Vendor or Supplier, please visit www. sabuilders.com.
Sincerely,
Ed Berlanga
President
What are the tax benefits of owning a home? Plenty of homeowners are asking themselves this right around now as they prepare to file their taxes.
You may recall the Tax Cuts and Jobs Act—the most substantial overhaul to the U.S. tax code in more than 30 years—went into effect on Jan. 1, 2018. The result was likely a big change to your taxes, especially the tax perks of homeownership.
While this revised tax code is still in effect today, the coronavirus has thrown a few curveballs. For one, the Internal Revenue Service has delayed filing season by about two weeks, which means it won’t start accepting or processing any 2020 tax year returns until Feb. 12, 2021. (So far at least, the filing deadline stands firm at the usual date, April 15.)
In addition to this delay, many might be wondering whether the new realities of COVID-19 life (like their work-fromhome setup) might qualify for a tax deduction, or how other variables from unemployment to stimulus checks might affect their tax return this year.
Whatever questions you have, look no further than this complete guide to all the tax benefits of owning a home, where we run down all the tax breaks homeowners should be aware of when they file their 2020 taxes in 2021. Read on to make sure you aren’t missing anything that could save you money!
Tax break 1: Mortgage interest
Homeowners with a mortgage that went into effect before Dec. 15, 2017, can deduct interest on loans up to $1 million.
“However, for acquisition debt incurred after Dec. 15, 2017, homeowners can only deduct the interest on the first $750,000,” says Lee Reams Sr., chief content officer of TaxBuzz.
Why it’s important: The ability to deduct the interest on a mortgage continues to be a big benefit of owning a home. And the more recent your mortgage, the greater your tax savings.
“The way mortgage payments are amortized, the first payments are almost all interest,” says Wendy Connick, owner of Connick Financial Solutions. (See how your loan amortizes and how much you’re paying in interest with this online mortgage calculator.)
Note that the mortgage interest deduction is an itemized deduction. This means that for it to work in your favor, all of your itemized deductions (there are more below) need to be greater than the new standard deduction, which the Tax Cuts and Jobs Act nearly doubled.
And note that those amounts just increased for the 2020 tax year. For individuals, the deduction is now
$12,400 ($12,200 in 2019), and it’s $24,800 for married couples filing jointly ($24,400 in 2019), plus $1,300 for each spouse aged 65 or older. The deduction also went up to $18,650 for head of household ($18,350 in 2019), plus an additional $1,650 for those 65 or older.
As a result, only about 5% of taxpayers will itemize deductions this filing season, says Connick.
For some homeowners, itemizing simply may not be worth it. So when would itemizing work in your favor? As one example, if you’re a married couple under 65 who paid $20,000 in mortgage interest and $6,000 in state and local taxes, you would exceed the standard deduction and be able to reduce your taxable income by an additional $1,200 by itemizing.
Tax break 2: Property taxes
This deduction is capped at $10,000 for those married filing jointly no matter how high the taxes are. (Here’s more info on how to calculate property taxes.)
Why it’s important: Taxpayers can take one $10,000 deduction, says Brian Ashcraft, director of compliance at Liberty Tax Service.
Just note that property taxes are on that itemized list of all of your deductions that must add up to more than your particular standard deduction to be worth your while.
And remember that if you have a mortgage, your property taxes are built into your monthly payment.
Tax break 3: Private mortgage insurance
If you put less than 20% down on your home, odds are you’re paying private mortgage insurance, or PMI, which costs from 0.3% to 1.15% of your home loan.
But here’s some good news for PMI users: You can deduct the interest on this insurance thanks to the Mortgage Insurance Tax Deduction Act of 2019— aka the Setting Every Community Up for Retirement Enhancement (SECURE) Act—which reinstated certain deductions and credits for homeowners.
“These include the deduction for
PMI,” says Laura Fogel, certified public accountant at Gonzalez and Associates in Massachusetts. (This credit is retroactive, so talk to your accountant to see if it makes sense to amend your 2018 or 2019 tax return in case you missed it in past years.)
Also note that this tax deduction is set to expire again after 2020 unless Congress decides to extend it in 2021.
Why it’s important: The PMI interest deduction is also an itemized deduction. But if you can take it, it might help push you over the $24,800 standard deduction for married couples under 65. And here’s how much you’ll save: If you make $100,000 and put down 5% on a $200,000 house, you’ll pay about $1,500 in annual PMI premiums and thus cut your taxable income by $1,500. Nice!
Tax break 4: Energy efficiency upgrades
The Residential Energy Efficient Property Credit was a tax incentive for installing alternative energy upgrades in a home. Most of these tax credits expired after December 2016; however, two credits are still around (but not for long). The credits for solar electric and solar water-heating equipment are available through Dec. 31, 2021, says Josh Zimmelman, owner of Westwood Tax & Consulting, a New York–based accounting firm.
The SECURE Act also retroactively reinstated a $500 deduction for certain qualified energy-efficient upgrades “such as exterior windows, doors, and insulation,” says Fogel.
Why it’s important: You can still save a tidy sum on your solar energy. And— bonus!—this is a credit, so no worrying about itemizing here. However, the percentage of the credit varies based on the date of installation. For equipment installed between Jan. 1, 2020, and Dec. 31, 2020, 26% of the expenditure is eligible for the credit (down from 30% in 2019). That figure drops to 22% for installation between Jan. 1 and Dec. 31, 2021. As of now, the credit ends entirely after 2021.
Tax break 5: A home office
Good news for all self-employed people whose home office is the main place where they work: You can deduct $5 per square foot, up to 300 square feet, of office space, which amounts to a maximum deduction of $1,500.
For those who can take the deduction, understand that there are very strict rules on what constitutes a dedicated, fully deductible home office space. Here’s more on the much-misunderstood home office tax deduction.
The fine print: The bad news for everyone forced to work at home due to COVID-19? Unfortunately, if you are a W-2 employee, you’re not eligible for the home office deduction under the CARES Act even if you spent most of 2020 in your home office.
Tax break 6: Home improvements to age in place
To get this break, these home improvements will need to exceed 7.5% of your adjusted gross income. So if you make $60,000, this deduction kicks in only on money spent over $4,500.
The cost of these improvements can result in a nice tax break for many older homeowners who plan to age in place and add renovations such as wheelchair ramps or grab bars in bathrooms. Deductible improvements might also include widening doorways, lowering cabinets or electrical fixtures, and adding stair lifts.
The fine print: You’ll need a letter from your doctor to prove these changes were medically necessary.
Tax break 7: Interest on a home equity line of credit
If you have a home equity line of credit, or HELOC, the interest you pay on that loan is deductible only if that loan is used specifically to “buy, build, or improve a property,” according to the IRS. So you’ll save cash if your home’s crying out for a kitchen overhaul or half-bath. But you can’t use your home as a piggy bank to pay for college or throw a wedding.
The fine print: You can deduct only up to the $750,000 cap, and this is for the amount you pay in interest on your HELOC and mortgage combined. (And if you took out a HELOC before the new 2018 tax plan for anything besides improvements to your home, you cannot legally deduct the interest.)
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