Interest deductibility. Mortgage interest is one of the few allowed deductible interest expenses. It is limited to the first $750,000 dollars in loans secured by your primary residence ($1 million for mortgages underwritten prior to 2018). You may also deduct points paid as an itemized deduction over the life of your mortgage.
Bonus: You can also deduct interest on a second home (cabin).
Home office. If you have a qualified home office, it also creates a deductible expense. There is also a safe harbor home office simplified calculation that makes it easy to get this tax deduction.
Property taxes. Your property taxes are also allowed as an itemized deduction. Current tax laws limit this deduction along with other taxes to $10,000 whether you are married or single.
Free rental income. You can rent out your home for up to two weeks and not claim the income. This is a great tax break if your home is located next to a popular landmark or a major event. Many taxpayers rent out their lake home for two weeks to help reduce the cost of their home away from home.
Home mortgage insurance. Premiums paid for home mortgage insurance are also deductible through 2020. While this tax deduction is not a permanent part of the tax code, it is often extended from year to year by Congressional action.
More home benefits!
Capital gain exclusion. Perhaps the best tax benefit of home ownership is receiving tax-free gains. Generally when you sell property for a profit it creates a taxable event. However, if the property is your primary residence you can omit up to $250,000 ($500,000 married filing jointly) of these gains. Special rules apply, but this is a major tax benefit of home ownership.
Better than rent. Since the housing bust of 2008, many would be homeowners are reluctant to exit their rental housing because of the perceived risk involved in owning a home. However, with the recovery of the housing market coupled with lower interest rates, now might be the right time to realize the tax benefits of owning your own dream home.
Turn Your Home Office Into a Tax Deduction
If you are working from home for the first time in 2020, you maybe wondering if your home office is tax deductible. The bad news? If you’re working from home for an employer, you normally can’t deduct your home office expenses.
Here’s a quick look at the basic requirements to be able to deduct your home office expenses, along with some suggestions for how to qualify for the deduction if you’re currently working for your company as an employee.
There are two requirements for having a tax-deductible home office:
Looking at these two criteria, everyone that is now required to work from home probably meets both qualifications. If you're a W-2 employee, however, you can't deduct your home office expenses on your tax return.
Solving the problem
Here are three options for solving your problem of being a W-2 employee and qualifying to deduct your home office expenses on your tax return.
What if none of these options for deducting home office expenses are feasible for you? While you won't be able to deduct your home office expenses on your tax return, you may still be able to end up financially ahead with the help of your employer.
Get reimbursed by your company
There's no question you are picking up some of the expense of your home office with added electrical, heating, telephone, internet, and other expenses. One way companies are solving this is by allowing employees to submit valid expense reports to cover some of these extra costs. They do this by setting up an accountable plan. With financial pressures on businesses, this might be a tough subject to broach, but if the system is already in place you may be able to find a way to get some of your home office expense reimbursed.
So if you're stuck working as a W-2 employee, look into whether your employer offers reimbursement for home office expenses.
Figuring out how to properly deduct your home office or get reimbursed by your employer can be a lot more complicated than it appears. If you need help, please call.
Out of an abundance of caution we have closed our office to any in-person meetings. We continue to work and ask our clients to upload their documents to us and chat over the phone as needed. We are also accepting documents by drop off or snail mail. Of course, you can always call us 425-640-8660LEARN MORE