Homeownership entails some significant tax breaks that homeowners should be aware of and take advantage of. The sad fact is that many people lose out in April because they aren’t aware of these tax breaks or just don’t know how to take advantage of these savings opportunities. In addition, tax laws went through a major overhaul recently, and some deductions have evaporated or decreased. So check out these 5 tax tips for homeowners in Metro Detroit Michigan.
1. Preparation and Organization
Here’s a miserable scenario: you’ve put off doing taxes till about April 12, and now you’re scrambling around feverishly trying to find the records and documents you need in order to beat the looming deadline. But it doesn’t have to be that way, and really it shouldn’t if you heed this one of our tax tips for homeowners in Metro Detroit Michigan.
Organization is key – it will only make your life easier and more stress-free at tax time. “Many of the federal income tax deductions or credits you can take as a homeowner,” tax pros state “require you to keep detailed records of your home-related expenses. Start saving receipts and other information right away — don’t wait for tax time to roll around. If you take a few minutes to set up an organization system for your tax paperwork and financial records, it should be quick and easy to maintain.”
2. Deduction Planning
Beyond organizing so that records are readily accessible, you should carefully plan your deductions. This is important because these deductions lower your tax obligation by reducing taxable income. So put pencil to paper and calculate whether you have enough homeownership-related expenses to justify itemizing and taking deductions. (More on this later in our tax tips for homeowners in Metro Detroit Michigan that deal with the new tax laws) The two largest and most common deductions are the:
HOME MORTGAGE INTEREST DEDUCTION
“If you took out a mortgage on or after Dec. 15, 2017, you may be able to take a mortgage interest deduction on up to $750,000 of mortgage debt for your primary residence. . . . Interest paid on your home equity loan or line of credit may also be deductible if you used the money to buy, build or substantially improve the house that secures the loan.”
DEDUCTION FOR STATE AND LOCAL TAXES
This can be a significant deduction for homeowners who live in a high property tax area. You may be able to deduct some or all of your property taxes as well as state and local sales tax (although there are now some new caps and restrictions in place).
3. Mortgage Interest Changes
Now we come to our tax tips for homeowners in Metro Detroit Michigan governed by the new tax laws. The first of these is the adjustment in the mortgage interest deduction. Now, the deduction is limited to interest up to $750,000 for filing jointly and $375,000 for married and filing separately.
If, however, you took out your mortgage before December 15, 2017, you’re in luck. In that case, this rule change probably won’t affect you. In addition, “the law treats refinanced mortgages as if they originated on the old loan’s date, which means the old limit of $1 million still applies. (If you refinance to borrow more than your current mortgage balance, different rules may apply, though.)”
4. Property Tax Cap
Also, under the new tax laws (since 2018), there is a cap for the property tax deduction, although a certain amount of property taxes remain deductible. This new cap for property taxes including state and local taxes is $10,000 for filing jointly and $5,000 for filing separately. Even though there’s a new cap on the deductible amount, this can still be significant savings, especially in high-tax areas.
5. HELOC Deduction Restrictions
This one of our tax tips for homeowners in Metro Detroit Michigan may come as a surprise for many people. So it’s one you need to be aware of.
There are now some restrictions on the deductibility of interest for a home equity line of credit (HELOC). “Now you can deduct HELOC interest only if you used the HELOC money to buy, build or substantially improve [your] home that secures the loan. In other words, if you used the money to improve your house, you can probably deduct the interest. But if you’re using that line to pay off personal expenses, like credit cards or things like that, then you can’t deduct it.”
This final one of our tax tips for Metro Detroit Michigan homeowners, which is tied to the tax-law changes, could be the most important one for some people. And that is that it might not pay to take these deductions.
The reason is that the standard deduction has been increased significantly, going to “$12,000 for single filers and $24,000 for joint filers.” The upshot is that you may be better off just taking the standard deduction rather than going the effort and/or expense of itemizing and taking the homeownership deductions.
All this, obviously, is a lot to take in and consider and will require some careful calculations. So a final tax tip for homeowners in Metro Detroit Michigan would be to get help from professionals. Our real estate professionals are more than willing to help provide some direction.