The holidays are over, and if you’re like a lot of Connecticut residents, there is a niggling in the back of your mind that you had better get started organizing your papers for tax season. This annual activity may not be high on your “Top 10 Fun Things to Do in the New Year,” but it’s good to be prepared. So if you bought a new home in CT this last year, there are still some tax benefits that go with that. As builders, we don’t give out tax advice, but there are some tax breaks for CT Homeowners that you might want to check out.
Two Big Benefits
There are still two big areas in which owning your own home can save you a significant amount of money.
- Interest expense: As a homeowner, you can deduct interest expenses for a mortgage of up to $750,000 from your income taxes. You should consider, however, that if you choose to itemize these deductions, you will forgo the standard deduction of $12,000 for individuals or married couples filing individually, ($18,000 for the head of household) or the $24,000 for married couples filing jointly.
- Capital appreciation: As your home increases in value, the gains you make are not taxed at the federal level. You can also exclude up to $250,000 in home appreciation when figuring your capital gains.
If you want to get a rough idea of how this might play out for you in preparing your taxes, check out this mortgage calculator.
There Have Been Some Changes
For many years homeowners have been able to take advantage of the tax benefits homeownership provides. And while benefits are still there you'll want to be careful because the Tax Cuts and Jobs Act (TCJA) of 2017 have reduced the deductions for some homeowners. Not everything deduction is still available. Here’s an article from the Intuit Proconnect Tax Pro Center that highlights what is still deductible and what is not.
Be Careful About Assumptions
Sometimes inaccurate tax information gets passed on unintentionally. Homeowners hear about alleged breaks and attempt to claim them. Here are a few areas in which some homeowners may think they can claim a deduction—but they really can’t.
- Mortgage insurance premiums
- Mortgage principle reduction payments
- Insurance payments for fire, flood, or homeowner insurance
- General home Improvements, repairs, or maintenance
- Home office allowance (unless self-employed)
Some Benefits Remain (Although some have been modified)
Interest on a refinanced mortgage can also be deductible with certain debt limitations (it is also dependent upon the date of the new mortgage)
The interest you pay on a home equity loan/home line of credit may also be deductible
State and local property taxes are still deductible—but the amount has changed. Up until 2017, the total amount of state and local property taxes was deductible from your federal taxes. Beginning in 2018 the amount you are allowed to deduct is capped at $10,000.
Talk to Your Tax Consultant and Take Advantage
There are still a lot of Connecticut property tax benefits available to homeowners. Our advice is to talk to your tax consultant to make sure you’re taking advantage of any advantages available to you. But don’t assume. Make sure you get good information from a professional.
Not every benefit of home ownership can be measured in dollars and cents. The final advantage of owning your own home is that you get to enjoy living in it all year long—not just at tax time. You still have the ability to create a home that fits you; meets your specific needs, and lets you live comfortably and conveniently. Anything beyond that is truly a bonus!