You may recall the Tax Cuts and Jobs Act—the most substantial overhaul to the U.S. tax code in more than 30 years—went into effect on Jan. 1, 2018. The result was likely a big change to your taxes, especially the tax perks of homeownership. This revised tax code is still in effect today.
You may remember that during the height of the COVID-19 pandemic, the Internal Revenue Service delayed filing season by about two weeks. But just like last year, there are no extensions and the date for filing is April 18, 2023. (According to the IRS, “The due date is April 18, instead of April 15, because of the Emancipation Day holiday in the District of Columbia for everyone except taxpayers who live in Maine or Massachusetts. Taxpayers in Maine or Massachusetts have until April 19, 2023, to file their returns due to the Patriots’ Day holiday in those states.”)
You might be wondering what else you need to beware of before filing your 2022 taxes, like whether your work-from-home setup might qualify for a tax deduction.
Whatever questions you have, look no further than this complete guide to all the tax benefits of owning a home, where we run down all the tax breaks homeowners should be aware of when they file their 2022 taxes in 2023. Read on to ensure you aren’t missing anything that could save you money!
Tax break 1: Mortgage interest
Homeowners with a mortgage that went into effect before Dec. 15, 2017, can deduct interest on loans up to $1 million.
“However, for acquisition debt incurred after Dec. 15, 2017, homeowners can only deduct the interest on the first $750,000,” says Lee Reams Sr., chief content officer of TaxBuzz.
Why it’s important: The ability to deduct the interest on a mortgage continues to be a significant benefit of owning a home. And the more recent your mortgage, the greater your tax savings.
“The way mortgage payments are amortized, the first payments are almost all interest,” says Wendy Connick, owner of Connick Financial Solutions. (See how your loan amortizes and how much you’re paying in interest with this online mortgage calculator.)
Note that the mortgage interest deduction is an itemized deduction. This means that for it to work in your favor, all of your itemized deductions (there are more below) need to be greater than the new standard deduction, which the Tax Cuts and Jobs Act nearly doubled.
And note that those standard deduction amounts increased for the 2022 tax year. For individuals, the deduction is now $12,950, and it’s $25,900 for married couples filing jointly. The deduction also went up to $19,400 for the head of household. And if you’re 65 or older, you can add on an extra $1,400 per person if married and filing jointly or an extra $1,750 if you’re a head of household or a single filer.
As a result of these increased standard deductions, itemizing your deductions may simply not be worth it this filing season.
So when would itemizing work in your favor? As one example, if you’re a married couple under 65 who paid $20,000 in mortgage interest and $6,000 in state and local taxes, you would exceed the standard deduction and be able to reduce your taxable income by itemizing. By Margaret Heidenry
Copyright printed with permission Realtor.com