Whether you bought a house, refinanced your current home, you may be able to take advantage of tax breaks for taxpayers who itemize. Here’s what to keep in mind:
Deducting State and Local Income, Sales, and Property Taxes
The deduction that taxpayers can claim for state and local income, sales, and property taxes is limited to a combined, total deduction of $10,000 – $5,000 if married filing separately. State and local taxes paid above this amount can’t be deducted.
Refinancing a Home
The deduction for mortgage interest is limited to interest paid on a loan secured by the taxpayer’s main home or second home. Homeowners who choose to refinance must use the loan to buy, build, or substantially improve their main home or second home, and the mortgage interest they may deduct is subject to the limits described under “buying a home” below.
Buying a Home
People who bought a new home in 2021 can only deduct mortgage interest paid on a total of $750,000 ($375,000 married filing separately) in qualifying debt for a first and second home. For existing mortgages, if the loan originated on or before December 15, 2017, taxpayers may continue to deduct interest on a total of $1 million in qualifying debt secured by first and second homes.
Donations to a qualified charity also qualify as a tax break. Taxpayers who itemize deductions can take advantage of a temporary suspension of limits on charitable contributions (CARES Act of 2020) that allows them to deduct cash donations to public charities in amounts of up to 100 percent of adjusted gross income (AGI). Normally, the limit for the deduction for cash contributions is 60% of AGI.
Investment Interest Expenses
Investment interest expense is interest paid or accrued on a loan or part of a loan that is allocated to property held for taxable investments – the interest on a loan you took out to buy stock in a brokerage account, for example. Taxable investments include interest, dividends, annuities, or royalties.
Wondering whether you should itemize deductions on your 2021 tax return? Don’t hesitate to contact Lindsey Lee at 972-318-1040 or visit www.TaxFixNow.com to schedule an appointment.