The Tax Breaks for Homes That Help You Now

Homeowners need to know these income tax facts

Home office and second homes deductions

A column in the Wall Street Journal answers some timely questions about income taxes and your home.  

As this article appears behind a paywall at wsj.com/articles/the-tax-breaks-for-homes-that-help-you-now-11596792602, the full text is below.

August 7, 2020

By Laura Saunders

 The coronavirus pandemic has had profound effects on real estate, and the sudden shifts make it a good time to delve into tax breaks available to home buyers and homeowners.

 Many people are scrambling to get mortgages now that interest rates are under 3%, either to buy a home in a red-hot market or refinance debt on an existing one. Others, who are working from home far longer than expected, are itching to renovate their nest or add workspace.

 And then there are those who have moved to vacation homes for the long haul. Some are even social-distancing in motor homes or boats.

 The tax landscape for homeowners changed with the 2017 tax overhaul, which made the long-cherished mortgage-interest deduction irrelevant for many. For 2018, 13 million filers claimed this write-off, down about 60% from 2017’s total of 33 million filers. The overhaul also limited interest deductions on home-equity loans and repealed a benefit for some home offices.

 

But other tax breaks for homes remain, such as one allowing mortgage-interest write-offs for motor homes and boats. Loosened rules on withdrawals from retirement accounts could provide a source of funds for home buyers who need cash this year. A spokeswoman for TD Bank said it’s allowing such withdrawals to be used for down payments

 Whether you’re part of a backlog of buyers or mulling changes to your current home, here are answers to key questions—plus examples to show how the rules apply in different situations.

 Will I get a mortgage-interest deduction if I buy a home?

 Yes, but it might not lower your taxes, if your “standard deduction” is higher than your total itemized deductions listed on Schedule A.

 The 2017 overhaul nearly doubled the standard deduction, and now it’s $24,800 for most married couples filing jointly and $12,400 for most single filers. So millions fewer homeowners are itemizing.

 Typical itemized deductions are for mortgage interest, charitable donations, medical expenses and state and local taxes (SALT), such as property and income or sales taxes. SALT deductions are limited to $10,000 per tax return.

 Here are examples provided by Evan Liddiard, a CPA who directs federal tax policy at the National Association of Realtors. Say that a married couple buys a $400,000 home with a 20% down payment, a 3% interest rate and a 30-year fixed rate mortgage. The first-year interest deduction would be about $9,500.

 If the couple deducts that amount, along with the limit of $10,000 for SALT, they’d still need more than $5,300 in charitable or other write-offs to get above the $24,800 threshold.

 Many single filers will find it easier to get a benefit. If a single person buys a $250,000 home with 20% down and a 3% interest rate, the first-year interest is about $5,950. If this buyer lives in a higher-tax area and has $10,000 of SALT write-offs, then his total itemized deductions are more than $3,500 above the $12,400 threshold, even without other write-offs.

 How much mortgage interest can I deduct?

 For new mortgages issued after Dec. 15, 2017, taxpayers can deduct interest on up to $750,000 of mortgage debt on up to two homes.

 For mortgages issued before that date, a “grandfather” provision allows interest deductions on up to $1 million of mortgage debt on up to two homes.

 Here’s how these two rules can interact. If a homeowner has a grandfathered $800,000 mortgage on a first home and wants to borrow $100,000 to buy a second home in 2020, then the interest on the $100,000 wouldn’t be deductible. For more information, see IRS Publication 936.

 Note that the $750,000 limit applies per tax return, so unmarried couples who buy homes together can deduct interest on up to $1.5 million of mortgage debt. Some couples in high-cost housing markets have refrained from marrying in order to double their deduction.

 I’m refinancing my mortgage at a lower rate. Can I still deduct the interest?

 Yes, in many cases. But current law disallows deductions on the “cash-out” portion of a refinancing unless it’s used to improve a home.

 Say that a borrower with a $400,000 mortgage balance refinances at a lower interest rate but raises the balance to $450,000 in order to have $50,000 for college tuition. In that case, only the interest on $400,000 would be deductible. But if she uses the $50,000 to add a room, then interest on the $50,000 would be deductible, says Mr. Liddiard.

 Are “points” paid to get a mortgage deductible?

 Yes. Points are upfront interest payments that typically reduce the rate. Points paid for a first mortgage are usually deductible the year it’s taken out, while points paid on a refinancing typically must be deducted over the loan’s term.

 I want to borrow to buy a boat or RV. Can I count that as a home and deduct mortgage interest?

 Maybe! Mortgage interest on debt used to buy a motor home or boat can be deductible if it has cooking, sleeping and toilet facilities. The write-off is also subject to the other requirements, such as no deductions for more than two homes.

 Mortgage interest on these homes may not be deductible for the alternative minimum tax—but far fewer people owe this levy than before the 2017 overhaul.

 Can I still deduct interest on a home-equity loan?

 It depends. Until the 2017 overhaul, interest on up to $100,000 of home-equity debt used for any purpose was deductible.

 Now, such interest is deductible if it’s used to make substantial improvements to a home. The debt must be secured by the property it’s used for, and the $750,000 and $1 million total debt limits apply.

 Now that I’m working from home, can I take a home-office deduction?

 Not if you are an employee, because the 2017 overhaul repealed that write-off. But your company can likely reimburse you for your work expenses during the pandemic and get a deduction. The payment won’t be taxable to you, says Gerard Schreiber, a CPA who specializes in tax issues involving disasters.

 Workers who are self-employed, either full-time or part-time, can often deduct home-office expenses on Schedule C for a space that’s used regularly and exclusively for the business. (That means no watching sports on a couch in the office during off-hours.) For more information, see IRS Publication 587.

 I’m spending more time at home, and I want to remodel my house and add office space. Are there tax breaks for remodeling?

 Yes, in some cases. A business owner who builds or upgrades office space at home may be able to take deductions for costs. For example, a photographer’s expenses for adding a studio and darkroom to her home could be deductible over time on Schedule C, as could the interest on a borrowing to finance it.

 For homeowners without businesses, the cost of improvements such as an addition can raise the “cost-basis” of the house and reduce taxable profit when it’s sold. So if a house was bought for $250,000 and the owner made $150,000 of improvements, then the starting point for measuring the gain after a sale would be $400,000. The interest on a home-improvement loan can also be deductible.

 This year many people can withdraw more from such savings plans than in the past, and on better terms, because Congress loosened rules for people affected by the pandemic. These savers can withdraw up to $100,000 from IRAs and many 401(k)s without owing the 10% penalty that would often apply. Then they can spread the tax over three years or pay all or part of the withdrawal back, according to IRA specialist Ed Slott.

 I have a city home and a vacation home, and until the pandemic I lived in the city. If I make my vacation home my primary residence, can I avoid owing city taxes?

 Maybe—but rules vary widely, so seek professional advice tailored to your area. For example, people with jobs based in New York often owe taxes to New York even if they’re residents of other states.

 To switch your vacation home to your primary home, you may need to count days spent in each place. You may also need to make moves showing you’ve truly changed your residence, such as switching doctors, children’s schools, your place of worship, and where you vote.

 Write to Laura Saunders at laura.saunders@wsj.com

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!

For your real estate purchase or mortgage refinance or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 973-227-0645

E-mail sflatow@vested.com

@vestedland

Sphere: Related Content

Happy 4th of July! The Culture That Sustains America’s Constitution

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help.

OK, this is not about title insurance, but about the Constitution. It being July 4th, I've set out this column from the Wall Street Journal in full since a subscription may be required to view it on line.
I hope you enjoy it as much as I did:

The Culture That Sustains America’s Constitution

Without it, checks and balances are barricades of foam and counterweights of butterfly’s breath.

By 

Joseph Tartakovsky July 3, 2018

Since 1789 the average life span of national constitutions world-wide has been 19 years, according to scholars at the University of Chicago. Meanwhile, “We the People of the United States” are now well into the third century under our Constitution. We’ve lived under the same written charter longer than any people on earth. We’ve had regular federal elections every two years, uninterrupted even by the Civil War.

Yet America’s Founders had serious doubts about the durability of their “experiment.” Alexander Hamilton, in an 1802 letter to Gouverneur Morris, wondered why he had wasted his best years defending our “frail and worthless” charter. In 1832 Chief Justice John Marshall, near the end of his 34-year tenure, lamented in private correspondence that “our Constitution cannot last.”

You might think America’s track record in the subsequent 200 years would inspire greater confidence. Yet many people today feel, as they have after many fraught elections, that the president is either a savior or the harbinger of doom. So it’s worth reflecting on why the Constitution has endured.

There is, first, its text: It is rigid enough to restrain excesses, yet flexible enough to accommodate innovations. It is so terse that you could fold it into a paper airplane (though the guards at the National Archives would prefer you didn’t). It presumes that both governors and the governed will act mostly responsibly. But as Robert H. Jackson, a future Supreme Court justice, explained in 1937: “Checks and balances work as effectively on spite, jealousy or personal ambition as they do on patriotism or principle.”

The Framers also created the world’s first constitution to institutionalize the principle of human equality. Consider that it was an immigrant who put the words “We the People” into the Constitution. He was James Wilson, the brilliant but forgotten Scottish-born founder who taught that under monarchy, in the “attempt to make one person more than man, millions must be made less.”

Popular rule had become more than a slogan. Alexis de Tocqueville visited in 1831 from France, where the crowned heads at Versailles dared not mingle with their people. He was astonished to meet state governors who had kept their day jobs as farmers. Later Tocqueville visited Andrew Jackson in the White House, where the president himself, with no servant in sight, served glasses of Madeira.

America’s progress in respecting the real implications of equality has at times been slow, even glacial, especially with regard to race. As early as 1876, black fathers in Kansas sought to have their children admitted to schools on equal terms with white children. Yet Brown v. Board of Education would not come for another 78 years. The truth that justice will be forever approximated but never achieved is reflected in the paradoxical words of the Constitution’s preamble: the aim of forming a “more perfect” union.

That impossibly shrewd phrase suggests that Americans have a miraculous thing that we must nevertheless strive to make better. In the 1940s, we interned Japanese-Americans out of misbegotten wartime racial hysteria. But we also apologized for it in a 1998 law that was co-sponsored by then-Rep. Norman Mineta. As a child, Mr. Mineta had been taken to an internment camp in Wyoming. He went on to serve 20 years in the House and five years as secretary of transportation.

“Every banana republic has a Bill of Rights,” Justice Antonin Scalia told a Senate committee in 2011. Written guarantees are meaningless without a culture to sustain them. Russia’s Constitution purports to secure the freedoms of speech and press, but Muscovites shrugged in 2001 when Vladimir Putin seized the last independent television network. Imagine if the White House swallowed up Fox News, CNN and MSNBC, one after another. Americans may bicker over “fake news,” but an attempt at censorship like that would unite us in virtuous rage.

Every American generation has a vocal minority that considers itself doomed to live in an age of constitutional degeneracy. The supposed fall from purity began about 600 days into the Constitution’s life, when the Virginia Legislature, in November 1790, denounced George Washington’s financial policies as constitutionally blasphemous. But Americans chose to cannonade each other with pamphlets, not artillery. And so the orderly transitions of power went on, one after another, like a never-ending football game in which the parties eternally gain and lose yardage.

Constitutionalism is not a mere institutional form but a culture—a set of sentiments, habits and assumptions, a permeating spirit that animates an otherwise lifeless paper scheme. Without this instinctive loyalty, the Constitution’s checks and balances are barricades of foam and counterweights of butterfly’s breath. It is not in having a constitution that our strength lies, but in cherishing it. So long as we keep the faith, our Constitution will be displaced no sooner than an ant tips over the Statue of Liberty.

Mr. Tartakovsky is author of “The Lives of the Constitution: Ten Exceptional Minds that Shaped America’s Supreme Law” and a former deputy solicitor general of Nevada.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 973-227-0645

E-mail sflatow@vested.com

Sphere: Related Content

Something we take for granted in New Jersey - Where Residents Pay Buckets of Money—for Water

We are the New Jersey title insurance agent for you! For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help.

From WSJ.com:

Where Residents Pay Buckets of Money—for Water

Who thinks of how much we pay for water?  In New Jersey and New York, residents pay reasonable amounts for the essential supply of water that we need. But, in California, not necessarily so.  From the WSJ, a comparison:

In the ritzy Long Island beach community of Southampton, N.Y., the average home runs about $1.4 million and a pound of lobster salad costs around 100 clams. Good thing for homeowners that their water bills are likely to be low. The average Southampton resident pays just $54 a month.

Meanwhile, residents in tony Pebble Beach, Calif., shell out $601 a month, on average, for their water.

Spread Sheet asked real-estate data firms ATTOM Data Solutions and UtilityScore to compile average water and sewage bills for almost 11,000 cities across the country. The results are a tale of two coasts: Homeowners in some of the wealthiest enclaves on the California coast pay buckets of money for their water relative to what Hamptons residents pay.

In addition to Pebble Beach, a number of upscale oceanside California communities like Carmel ($506), Santa Barbara ($469), Monterey ($439) and Malibu ($251) have some of the nation’s highest water bills. Long Island enjoys some of the lowest—even exclusive Hamptons communities like East Hampton ($50), Water Mill ($56), Sag Harbor ($54) and Montauk ($49).

Read the full story at WSJ.COM

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 973-227-0645

E-mail sflatow AT vested.com

#NewJersey #titleinsurance

Sphere: Related Content

Tax Credit Creates "First Time Fraudsters" - WSJ

When it comes to greed, the real estate market appears to be the breeding ground for schemes. The so-called sub-prime mortgage debacle leads to the recession. To help pick-up the real estate market, the government (read "we taxpayers") provide an incentive in the form of a tax credit for first time homebuyers.

Just as the mortgage schemers found the weaknesses in the mortgage financing system, so too have others found weaknesses in the tax credit.

The WSJ writes,

It's hard not to laugh when viewing the results of the federal first-time home-buyer tax credit. The credit, worth up to $8,000 for the purchase of a home, has only been available since April of last year. Yet news of the latest taxpayer-funded mortgage scam has traveled fast. The Treasury's inspector general for tax administration, J. Russell George, recently told Congress that at least 19,000 filers hadn't purchased a home when they claimed the credit. For another 74,000 filers, claiming a total of $500 million in credits, evidence suggests that they weren't first-time buyers.

As a "refundable" tax credit, it guarantees the claimants will get cash back even if they paid no taxes. A lack of documentation requirements also makes this program a slow pitch in the middle of the strike zone for scammers. The Internal Revenue Service and the Justice Department are pursuing more than 100 criminal investi-gations related to the credit, and the IRS is reportedly trying to audit almost every-one who claims it this year.

And so it goes in America. Read the full column, First Time Fraudsters.

For your next title order
or if you have questions about what you see here,

contact Stephen M. Flatow
Vested Title Inc.
648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220 - Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

Sphere: Related Content