Tired of Uncle Sam reaching so deep into your pocket every year? Well, you have a lot of company. And if you’re a homeowner, you’re in luck because there are some significant deductions you can take at tax time. That way, you can keep a little more of your hard-earned money. Here are our picks for the best tax deductions for homeowners in Chicago.
Mortgage Interest
This is one of the tax deductions for homeowners in Chicago that most people are aware of, but many don’t realize what a hefty break it can be. If you itemize personal deductions, you can deduct the interest you pay on your mortgage (with certain limits and restrictions).
For a home purchased before December 15, 2017, you can deduct mortgage interest on up to one million dollars in loans for buying, building, or improving the main home as well as a second home. If your home was purchased after December 15, 2017, that amount is reduced by $250,000 for home acquisition debt. Keep in mind, though, that these limits are cut in half for married people filing jointly.
Mortgage Lender Points
Mortgage lenders charge a bunch of different fees for their services, and one of these is termed “points.” One point is equal to a certain amount of the loan principal so you may have thousands of dollars worth of points. And the point is that you can deduct points associated with a mortgage used for a home purchase. You can also deduct mortgage points acquired by refinancing, but spread out over the life or loan.
Home Office
A lot of people work remotely or freelance from home. If you’re one of them, then you have another of the tax deductions for homeowners in Chicago right there. When you use a portion of your home for business purposes only, you can deduct costs related to that portion of your home. That means if your home office area is 10% of your square footage, you can deduct a proportionate percentage of your utilities, insurance, and repair costs.
Interest on Home Equity Loan
Up until 2018, you could deduct the interest on up $100,000 on home equity loans used for any purpose, whether to buy a car, pay off credit cards, or whatever. Now, however, you can deduct the interest only on home equity loans used to purchase, build, or improve a main or second home, and the loan must be secured by your main or second home. So, for example, you could deduct the interest on a home equity loan you took out to add a bedroom or remodel a kitchen.
Property Taxes
Property taxes have always been one of the important tax deductions for homeowners in Chicago, but there are some new limits in effect in 2018 (and running through 2025, unless there are further changes). There is now a $10,000 annual cap on itemized deductions for property, state, and local tax. This $10,000 cap, which applies to both single and married taxpayers, is for deductions taken for property tax and state income tax or local sales tax. Be aware, though, that you can’t take this deduction for money held in escrow for property tax until it is actually paid out for the tax.
Since you can legally take these deductions, you should. You’ll be paying on your home for many years to come, so why not hang on to your cash when you can? And if you’re not yet a homeowner and would like to get in on these tax breaks, we’ll be glad to help. Send us a message or call today! 773.233.2301