What Tax Breaks Do Homeowners Get in New York?
A home buy will likely be the greatest investment of your life, and let’s face it—the most expensive—but the good news is you can claim sizable deductions that will reduce the amount your homeowner-related expenses.
Mortgage interest, property taxes, and mortgage insurance premiums are just some of the deductions you can take if you have a mortgage on your home.
Together, they can add up to substantial savings on your tax bill.
Whether you currently own a home, are considering purchasing one or have made changes to your mortgage, it’s helpful to consider how your tax return will be affected, and research the best ways to save.
Understanding Tax Benefits
There are two ways to save on your taxes--itemized deductions or taking a standard deduction.
However, it’s an either/or system. You can take on or the other but not both.
Itemized deductions are generally only recommended if you have enough things to itemize. Otherwise, it’s better to take the standard deduction.
The IRS standard deduction for 2018 is $24,000 for married couples and $12,000 for singles or married couples filing separately.
An additional $1,300 deduction is available for elderly or blind taxpayers in 2018, and that amount increases to $1,600 for those who are also unmarried.
So check first whether your itemized deductions exceed these amounts.
In NYC specifically, there are deductions available to disabled persons, senior citizens, veterans, clergy members and more meaning you may qualify for an even sweeter deal.
Let’s go through how.
What Tax Deductions Do I Qualify For?
Let's take a look at a few tax deductions you might be eligible for as a homeowner.
Usually, a large chunk of your initial mortgage payments go toward paying interest on the loan, and only a small chunk will go toward the principal.
You can, however, deduct these mortgage interest payments on your primary and sometimes even on your secondary residence—up to $750,000 for married couples, or up to $375,000 if you’re married and filing separately.
However, this only applies to mortgages for homes bought after December 16, 2017. You couldn't even have gone into contract before that date.
This hefty tax break applies to home purchases, mortgage refinances, home equity lines of credit and home equity loans, sometimes called second mortgages.
How to Deduct Mortgage Interest on Your Taxes
You’ll receive a 1098 form from your mortgage servicer. Use this as a guide for the mortgage interest deduction process.
Your lender will send you a statement each year to let you know how much interest you paid; that will help you figure out if it’s worth your while to itemize or claim the standard amount.
If you report this interest as a deduction, you’ll owe less come tax time and have more to pay down your mortgage principal.
You can only claim mortgage interest if you are submitting itemized deductions with a Schedule A form.
Is Deducting Mortgage Interest From Your Taxes Worth It?
Deducting all your mortgage interest from your income may sound awesome but there is a hitch.
The mortgage interest deduction is an either/or with your standard deduction so you cannot deduct both.
You must make a choice on what is going to get you the largest deduction.
It works better for those with large mortgages and higher interest rates. It's also not worth it if you've paid a huge chunk of your mortgage down.
State and Local Property Taxes
You’ve probably heard about this well-known deduction: property taxes.
The max amount of property taxes you can deduct from your combined state and local income tax reports is $10,000.
The majority of taxpayers in the U.S. won’t be affected by this cap because their property taxes fall below this, but the impact will be felt in states with high property taxes, such as California, New York and New Jersey.
How to find out how much you owe?
The county’s property assessor’s office typically sends out a statement at the beginning of the year showing the amount of property taxes owed.
One more thing: If you bought a home and reimbursed the sellers for taxes they had already paid for the year, you’ll see that reflected on your settlement statement, not on your 1098.
Points are essentially prepaid interest and can be deductible as mortgage interest.
According to real estate experts, most homeowners overlook this deduction.
But take note: if you bought a home in 2018, you may get to include mortgage points on your tax return.
Points are allowed to be deducted ratably over the life of the loan or in the year that they were paid.
You can deduct the points in full in the year you pay them, if you meet all the requirements set by the IRS, as made available on their website.
If your home acquisition debt exceeds the limit for your filing status, you won’t be able to deduct all of the mortgage interest and points.
The Airbnb boom has made it increasingly common for homeowners to rent out extra space to tourists or tenants for income, especially in high-demand space-scarce NYC.
Unfortunately, you’re required to report the extra income (aka that closet you’re renting out as a side hustle) on your taxes.
The benefit, however, comes from being able to deduct the repairs and improvements made to the space.
Anything from a new light fixture to calling the plumber can reduce your overall amount owed.
If you own commercial property as an investment, these repair expenses are also deductible.
That means your landlord has no excuse for not fixing the dishwasher!
Home Office Expenses
Whether it’s a side hustle or a full-time gig, if you work from home, consider deducting costs for the space on your itemized tax return.
The current tax law allows you to take a deduction of $5 for every square foot, up to 300 square feet of office space.
There are some stipulations for this benefit.
Your home office can’t be in a guest bedroom or a room used for a dual purpose.
For 2018 taxes, the home office expense deduction was limited to self-employed workers, so check the restrictions before deducting.
Capital Gains from a Sale
The capital gains exclusion rule allows home-sellers to keep the profit from a home sale without paying taxes on it.
That’s right--if you lived in the property as your primary residence for the last two years, you can keep up to $250,000 tax free as a single person, or 500,000 tax free as a married couple.
The majority of home-sellers are able to use this clause to profit from the sale of their home without having to report their earnings to the IRS.
Private Mortgage Insurance (In some cases)
Private Mortgage Insurance (PMI) is a fee you have to pay when you put less than 20% down on your home.
Lenders do this to protect themselves from losses in the event you default on your loan.
The current tax law states that you can claim the deduction if your adjusted gross income is $100,000 or less if you’re married or $50,000 if you’re single.
Currently, you can take advantage of this deduction, but it does face review annually, so double-check recent news before taking it.
On the other hand, you can put 20% down on the home and avoid this fee entirely.
Deductions for Aging Gracefully
If you plan to stay in the same house for a long time, you can deduct expenditures that assist you with aging.
Common examples include wheelchair ramps, bathtub grip bars, etc.
You may even be able to deduct things like lowering cabinets. Check the eligibility requirements in your area.
NYC Group-Specific Tax Breaks
As one of the more progressive places to live in the US, New York City offers special tax breaks and abatements for certain protected groups.
If you are a senior citizen or a disabled person with an income of $58,399 or less, a veteran, the spouse/widow of a veteran, an active clergy member, or if you’ve received School Tax Relief (STAR) benefits, you could be eligible for a tax break on your property taxes.
Owners of coops and condominiums who meet the city-specified requirements for the Cooperative and Condominium Property Tax Abatement can also have their property taxes reduced.
NYC MCI and Green Roof Tax Break
You can also get a one-time tax break for a “green roof” or growing plants on the roof ($4.50 per square foot) that will absorb rainwater and help reduce cooling costs.
The benefit is capped at whatever is less: $100,000 or the amount of property taxes due for the building last year.
The same goes for Major Capital Improvements approved by the city.
Check out nyc.gov’s section on property taxes for more info on green roof and MCI exemptions.
Go Solar and Save
In addition to saving money on your monthly electric bill overall, installing solar panels on your roof can earn you some major tax breaks and good eco-karma.
The federal solar tax credit, also known as the investment tax credit (ITC) allows you to deduct 30 percent of the cost of installing a solar energy system from your federal taxes.
The ITC applies to both residential and commercial systems and there is no cap on its value.
In addition to the federal tax credit, New Yorkers who install rooftop solar equipment are eligible for NYS solar tax credits.
The personal tax credit in New York state is about 25 percent of the cost of your system up to $5,000.
That means typically more than half the cost of a rooftop solar energy system install can be offset by tax credits in New York state.
New York also offers a property tax exemption for the value of your solar installation.
Some municipalities have opted out and New York City instead offers a property tax abatement, socheck the details to see if you qualify.
You can find even more deals and incentives through approved contractors. This includes an Affordable Solar program for income-qualifying households.
Even if you’re not a homeowner, you can benefit from this tax break by getting involved with a community solar project near you.
Consult a Tax Professional
Understanding the tax benefits of owning a home can help you make a more informed home-buying decision, especially if you’re just starting to think about switching from renting to buying.
But make sure you consult a tax professional or use a certified service like Turbo Tax to ensure you’re within your legal rights and to get the most out of your tax return as a homeowner.
If you're in the process of purchasing a home, you can also ask your real estate attorney or mortgage lender about some of the tax benefits you might qualify for.