Under the Tax Cuts and Jobs Act, which took effect in 2018, a few of the tax benefits for homeowners have disappeared. But the tax breaks for homeowners that remain are certainly nothing to sneeze at and can add up to big savings. The good news in all the tax shake-up is that fewer people will need to itemize on their tax forms. For homeowners, it pays to be aware of the available deductions. So let’s examine 6 tax breaks homeowners can take advantage of in Colorado Springs.
1. Mortgage Interest
Among the tax breaks for homeowners in Colorado Springs, one of the most important is the one that involves mortgage interest. You can, in fact, deduct your mortgage interest, which can be a pretty hefty deduction, on your taxes. In addition, you can deduct interest on a refinanced mortgage, so it’s not limited to that first mortgage.
There are, however, some new limits on these deductions. According to one reputable national publication, your total yearly interest “is deductible on your taxes up to $750,000 [which was formerly $1,000,000] for any loans issued after” December 14, 2017. “The limits count as your total housing-related debt, including the mortgage on your home, a mortgage for a second home or home equity loan or line of credit.”
2. Property Tax
The deduction for property tax has been one of the main tax breaks homeowners can take advantage of in Colorado Springs, and while it still is, there have been some significant changes. The new cap for deductions for property tax and other local and state taxes, according to tax experts, is $10,000, which applies to both “single and married taxpayers and is not indexed for inflation.” Still, homeowners are allowed to deduct up to $10,000 for property tax, as well as for state income tax and state and local sales tax.
3. Home Equity Loan Interest
Another of the tax breaks homeowners can take advantage of in Colorado Springs is the deduction for home equity loans. Sometimes you need cash for an emergency or a major purchase. And if you have equity in your home, a home equity loan provides a way to get those funds.
Prior to 2018, you could deduct the interest on home equity loans up to $100,000 even if the money was used to, say, pay off credit card debt or pay for college tuition. Now, however, only “the interest you pay on a home equity loan used to purchase, build, or improve your main home or second home remains,” as one financial source puts it. In addition, such loans “must be secured by your main home or second home.”
4. Deduction for Points
One of the often-overlooked tax breaks homeowners can take advantage of in Colorado Springs is the deduction for points. Points are one of the fees lenders charge, with one point being equal to 1% of the loan principal. Around one to three points is fairly typical for most home mortgages, and that can up add to a significant amount of money. The good news is that you can deduct these points that are tied to your home loan.
Also, if you refinance, the points for the refinanced mortgage are deductible. These points, however, are deductible only over the life of the loan – you can’t take a large one-shot deduction.
5. Mortgage Tax Credit
Now here is one of the tax breaks homeowners can take advantage of inColorado Springs that many people aren’t aware of. And while it applies only to specific situations, it can be a decent tax break for some homeowners.
This special tax break involves a home purchasing program for low-income, first-time buyers called mortgage credit certificate (MCC). If you are in this program, a reputable legal source claims, you can “benefit from a mortgage tax credit of up to 20% of the mortgage interest payments made on a home. . . . The maximum credit is $2,000 per year if the certificate credit rates over 20%.” Just be aware that if you want to take advantage of this tax break, you will need to “apply to your state or local government for an actual certificate.” But the credit remains available as long as you keep the loan and live in the home purchased with the certificate.
6. Deduction for Home Office
The home-office deduction can be an important tax break for freelancers and other self-employed people who work from home. If you use a room or a portion of your home exclusively for business purposes, you may be able to deduct costs associated with that part of your home. These costs include the appropriate percentage of the heating/cooling bill, insurance, depreciation, and repair. Keep in mind, though, that the space you claim in your home for a home-office deduction must be your principal place of business.
So the after-2018 tax breaks homeowners can take advantage of in Colorado Springs are still significant. And the upshot is that owning your own home is not only a good investment, but can also save your money when you factor in all these deductions. Still, you have to purchase a home wisely in order to maximize the tax breaks.