Are you a tax-savvy homeowner?

By Erik J. Martin CTW Features

The turn of the calendar year may have come and gone, but it’s never too early to make a New Year’s resolution – especially one that and save you money. And if you own a home, you may be leaving money on the table that you could otherwise deduct from your taxes.

That’s why it pays to understand every tax write-off you’re eligible for and start keeping good records that can substantiate whatever you claim on your tax return.

“It’s always helpful to make sure you are maximizing specific tax benefits. Every situation is different, but often there are options to consider prior to year-end, after which it’s too late,” says Jessica Distel, director of Business Services for Buckingham Advisors in Westerville, Ohio.

In other words, the deadline has probably passed to plan for writeoffs, deductions, and credits that you can claim on your 2020 tax return due to the IRS this April. But there’s plenty of time left in this new year to scheme for tax savings you’re eligible to claim in 2021.

“It’s important to review your eligible tax deductions in advance of the April 15, 2022 tax deadline to make sure you are not missing any deductions you are legally entitled to and to avoid any surprises with an increased tax bill,” explains New York City-based tax accountant Ariel Gamburg.

John Blake, a partner with Klatzkin, a Hamilton, New Jerseyheadquartered accounting and advisory firm, says this strategy is particularly important for taxpayers and home-based business owners who follow cash basis accounting, which recognizes expenses and revenues at the time cash is paid out or received.

“Being a cash basis taxpayer essentially means that any possible tax-saving actions would have to be done by December 31, 2021,” says Blake.

According to Distel, the good news is that eligible homeowners may still be able to deduct amounts paid this year for real estate taxes, loan points, mortgage interest, mortgage insurance premiums, and IRS-approved charitable causes.

The bad news? The Tax Cuts and Jobs Act (TCJA) of 2017 somewhat limit your ability to maximize tax deductions.

“With the changes to the tax code taking effect three years ago, most homeowners – especially married couples – don’t get as many federal tax benefits as in the past for homeownership,” Gamburg adds. “For instance, deductibility of the home mortgage interest expense was reduced on new mortgages with a $1 million mortgage balance to $750,000. And the real estate tax deduction is now limited to $10,000, which includes state and local taxes. This, coupled with the fact that the standard deduction is now set at $24,800 for married couples filing jointly, most married taxpayers need their mortgage interest expense and charitable deductions to exceed $14,800 to receive any federal tax benefits.”

Blake notes that these changes have caused many taxpayers to switch from itemizing deductions to taking the standard deduction, especially those individuals who have been affected by the TCJA.

Unfortunately, salaried employees who have been forced to work from home due to the coronavirus aren’t eligible for any special deductions.

“However, you can ask your employer to reimburse certain expenses incurred for working from home, possibly, for instance, higher utility bills; generally, these reimbursements are not taxable income to you,” says Gamburg.

If you are working from home for yourself as a sole proprietor or small business owner, you can also still claim a home office deduction if proper conditions are met.

“If you have a homebased business and use a portion of your house exclusively for that business, you can deduct a portion of house-related expenses against your business,” Blake says.

Say your home office comprises 10 percent of the square footage inside your home. In this case, you may be able to deduct 10 percent of many of your home’s expenses with careful record-keeping.

“Some of the costs that you are allowed to deduct include a portion of real estate taxes, a portion of mortgage interest, a portion of homeowners insurance, a portion of utilities, and other expenses that may directly impact the office space. Even to some extent, home improvements that are done to the house’s overall exterior could be subject to a possible deduction,” adds Blake.

Again, for best results, start early and think forward.

“One of the best ways to maximize your tax deductions is to plan ahead for itemized deductions so that you can spend more on needed expenses in a specific year, which can then generate a higher deduction,” says George Birrell, a CPA and founder of TaxHub in New York City. You can also hold off on certain expenses until you decide you want to itemize for a given year, thereby maximizing the value of that deduction.”

Lastly, think about recruiting an expert who can help you plan for and claim every tax write-off you qualify for.

“Getting sound tax and accounting advice from an experienced accountant or tax planner can yield great benefits,” Distel suggests.