For Californians, the Tax Cuts and Jobs Act of 2017 saw a change when the tax reform was enacted and signed by the President.
Property Tax deductions are capped out at $10,000 and for more affluent individuals with larger mortgages. Mortgage Interest Deductions were dialed back.
But some changes in standard deductions could compensate for the changes.
To help you navigate the changes, we came up with most real estate and mortgage-related deductions that we encounter with our practice.
This could be applicable to your tax situation and save on your tax bill.
Also, we’ll consider your tax status when your filing. This will determine if you can itemize your deduction or take the standard deduction instead.
Mortgage Interest Tax Deductions
On the initial years of your mortgage, most of the payment you make goes toward paying the interest than going toward the principal balance.
But you can deduct some of those interest charges with the Mortgage Interest Deduction.
With the real estate prices in California, it’s one of the largest deductions you have on your returns.
A seasoned tax professional can assist you with that and see which avenue is more beneficial for you.
Mortgage Points
If you bought a home, there’s a great chance that you paid a loan origination fee with the lender. You can deduct one point or 1% of the loan amount.
For example, in Los Angeles, average homes go for $570,000. With a 1% origination fee, that’s $5700 you may be able to itemize your deduction and lower your tax bill.
Another one is mortgage points. Most borrowers pay for points to lower their mortgage rates.
The mortgage points that you bought could be deducted.
Keep a copy of your final settlement statement handy. It’s usually called Closing Disclosure.
This document enumerates the fees associated when you closed the home. Both origination charges or discount points will be shown on the 1st and 2nd page.
A lot of homeowners miss these deductions, so let your tax professional about it.
Property Taxes
The maximum is $10,000. This is the amount that you can deduct depending on your tax status.
Your county assessor office should send out a statement at the beginning of the year and will serve as a statement on what you owe on property taxes.
Property taxes are either paid through your escrow or you’ll have the obligation to pay yours at a scheduled time of the year depending on your county.
Property Taxes in Los Angeles are due on November 1 (first installment) and April 10 (second installment).
Combining it all
Having your own home gives you that secured comfort of having your own space. Consequently, tax credits and deduction are one of the major benefits of having a home to lower your tax bill.
Most of the time, having a home gets your tax situation a little challenging than normal.
With that said, having a tax pro on your side won’t break the bank anyway, compared to the savings and benefits that you’ll get after the tax breaks.
It makes the pain point of having a home to maintain worth it in the long run.
If you have any questions about your specific tax situation, you can call us or schedule to visit us for a document review.
