Thinking of Buying a Home? Tax Changes and the Benefits to Consider
Date: February 20, 2019
If you’ve been watching the news, you might have heard that there have been some major tax changes that will affect homeowners’ deductions in 2019. This has some people riled up, but don’t panic! If you own a home in West Chester or Liberty Township, Ohio, there are still major tax benefits to owning a home.
First things first – let’s look at the biggest change that people are talking about: the standard deduction.
Under the revised tax code, the standard deduction, the amount everyone gets whether or not they have actual deductions, has nearly doubled. It’s increased from $13,000 to $24,000 for married couples filing jointly; increased from $9,550 to $18,000 for heads of household; and increased from $6,500 to $12,000 for individuals.
The majority of people will benefit from this larger standard deduction. It saves most people from having to itemize every single write-off this year. In fact, most people will get a better deal than if they did itemize their deductions. So it’s a double-whammy – more money and less of a headache for the majority of West Chester and Liberty Township homeowners!
So, what has everyone up in arms?
Well, as you may or may not know, one of the largest tax benefits to owning a West Chester or Liberty Township home has traditionally been your ability to write off mortgage interest and tax payments. Under the new law, those write-offs are capped when using the standard deduction. So, for instance, if you and your spouse spend in excess of $24,000 per year on mortgage interest and tax payments, you get the short end of the stick this year.
According to the federal government, this will affect millions of people: the number of homeowners who will be able to deduct their mortgage interest is expected to fall from around 32 million to about 14 million.
But here’s why West Chester and Liberty Township homeowners shouldn’t panic: given the cost of homes in our area (which tends to be far lower than people who live in coastal cities like Boston, NYC, and San Francisco), and given very reasonable local taxes, most people in Butler County won’t hit the standard deduction maximum. Few people are paying more than $24,000 per year in mortgage interest and local taxes.
Here’s a practical example:
A West Chester, Ohio couple has an adjusted gross income of $120,000 per year. They make $2,500 in charitable contributions, spend $5,000 on medical and dental expenses, pay $6,000 in state and property taxes, and pay $8,500 per year in mortgage interest. In total, the couple’s deductible expenses are roughly $17,000, which is still well below the new $24,000 standard deduction threshold. So this couple will simply be able to take the standard deduction without having to itemize their write-offs.
For those who are in excess of the standard deduction threshold, they’ll still want to itemize their deductions on their taxes this year. Here are some common write-offs that West Chester and Liberty Township homeowners can still take advantage of this year:
Mortgage Interest: We’ve already discussed this above, but just to hammer the point home: those with larger mortgages tend to pay more in mortgage interest each year. All mortgage interest payments can be deducted.
Property Taxes: Thankfully, property taxes in our area tend to be relatively affordable. However, the more expensive your home, the more you’ll pay in taxes—but these can all be written off.
Home Office: If you own your home and work from home, you can write off a portion of your mortgage as a business expense. You’ll want to know the square footage of your home office and prorate this equivalently. Then you’ll be able to write off that percent of your utilities such as electricity and heat, as well a home insurance, security expenses, homeowners’ association fees, home repairs and maintenance expenses. For instance, if you had to install a new heating system this year that cost $10,000 and your home office takes up 10% of the square footage, you’d be able to write off $1,000 of that cost.
These are just some of the many tax deductions available to West Chester and Liberty Township homeowners. You’ll want to send some time reading up on the changes that took effect under the new tax law, and when in doubt, always circle back with your accountant.
At the end of the day, there are LOTS of reasons to buy a West Chester or Liberty Township home for sale – the tax advantages are just one of the major benefits to consider! Interested in learning about the other reasons? Give us a shout today!