Filing your taxes can be complicated — especially when you own a home. But there are also a lot of potential write-offs that are often overlooked, as well as tax benefits to home-owning that you’ll want to make sure you’re aware of come tax time.
Of course everyone’s financial situation is different, so make sure you consult with a tax advisor before making any major decisions about your taxes.* But you can begin doing your own research by reviewing each of these potential deductions, understanding what it takes to qualify, and learning the relevant tax laws that may affect your 2019 taxes.
The first thing to understand when evaluating tax savings options are the basics of deductions. When you’re filing your taxes, you’ll be offered the option to itemize your deductions, i.e. list out each qualifying item you can deduct from your income, or, use the standard deduction, a flat amount that everyone can deduct from their income if they don’t itemize.
You can’t do both, so be sure to choose the option that’s best for you. Hint: It’s probably whichever one is most favorable to your wallet.
The standard deduction is a flat amount that you can deduct from your annual gross income, if you are not itemizing your deductions. This amount changes every year, and the chart below shows the amounts for 2019 and 2020.
|Married (filing jointly)||$24,400||$24,800|
|Married (filing separately)||$12,200||$12,400|
|Head of household||$18,350||$18,650|
In order to claim any homeowner deductions, such as the mortgage interest deduction, you must itemize your deductions. In order to itemize, you’ll need to keep organized financial records of your qualifying deductions throughout the year. Itemizing your deductions usually requires a little bit of extra effort, but it often results in more tax savings if you have enough qualifying deductions.
There are pros and cons to both routes, but overall you’ll want to ensure you choose the method with the greatest tax benefit in your situation.
A tax deduction is a type of tax incentive that allows an individual to subtract a qualifying expense from their taxable income. This, in turn, reduces an individual’s tax liability by lowering their annual gross income.
Tax deductions are often expenses accumulated during the year that relate to the tax filer’s work, or there are also deductions available for mortgage interest, home office cost, medical bills, and more. There are many different types of tax deductions, and the sections below explain some of the most overlooked ones.
A tax write-off, which is the same thing as a tax deduction, is a cost you can fully or partially deduct from your taxable income to lower the amount of taxes you owe the government. If you’re itemizing your write-offs, or deductions, you want to make sure you’re claiming everything you possibly can in order to get the biggest tax benefit.
Not everything is tax deductible, so it’s important to take a look at what you can and cannot write off. Here are some examples of expenses that are not deductible:
Tax exemptions are ways to reduce your taxable income and therefore your tax liability. Some people and organizations are completely tax exempt, while others are able to take advantage of deductions and exemptions to save money during taxes.
Significant changes were made to available tax exemptions in 2018, and those changes could affect how you file your taxes. Here’s a look at some of the changes that are in effect through 2025:
This list does not include all deduction changes, so for a complete look at the 2018 changes, read IRS publication 5307, Tax Reform Basics for Individuals and Families.
If you are married and filing separately, you can claim one exemption for yourself. Additionally, you can claim an exemption for your spouse under the condition that if they had no gross income, aren’t filing a return, and cannot be claimed as the dependent of another taxpayer. However, if you file jointly, you can claim an exemption for each one of you.
The Alternative Minimum Tax is an alternative to standard income tax typically paid by individuals in higher tax brackets to make sure they’re paying some taxes and not deducting too much. In essence, AMT payers calculate their income tax twice — under regular tax rules and under the stricter AMT rules — and must then pay the higher amount.
One of the most important things to note about the AMT Exemption is that, if you qualify and opt to take it, you may not be able to take as many tax breaks, including deductions and credits.
Make sure you take all these tax deductions into account as you plan for your financial future. If you’re curious about how buying a home can bring you benefits during tax time, talk to your tax adviser.
*Consult a tax adviser for further information regarding the deductibility of interest and charges.