Once again, tax season is nearly upon us. For those who bought or sold a home in 2021 (or who are planning to buy or sell in 2022), this will mean a little extra legwork on your taxes. Luckily, tax laws for homeowners haven’t changed from 2021 to 2022, so the process should be fairly straightforward. We spoke with expert Jerry R. Rhodes, President of BBI Accounting of Columbus, who offered the following critical tax information for home buyers and sellers.
Tax tips for home buyers
If you’ve recently bought a home or are getting ready to buy, it’s important to understand how tax deductions work when it comes to homeownership.
Write it off!
New homeowners gain a huge tax advantage: You can write off your home mortgage interest and real estate taxes. This may reduce your tax bill significantly! The Schedule A tax form allows you to claim either the standard deduction or an itemized deduction—whichever saves you more money. Some homeowners may still claim the standard deduction, but it’s a smart idea to check with your tax professional to see which strategy is best for your situation.
TAKE NOTE! Some of the major homeowner expenses that are not deductible include closing costs, homeowners insurance, and Homeowners Association (HOA) fees.
Second Homes & Vacation Properties
Did you know that you can claim tax deductions for two homes? That’s right! If you split time between your primary residence and a second home, both can be deducted on your taxes. However, there’s one very important caveat to know: This doesn’t apply to vacation properties that earn income for you, such as Airbnb homes. These properties have a different set of deductions entirely. Bear this in mind if you’ve recently bought (or are looking to buy) an income-producing vacation home.
Tax tips for home sellers
2021 was an exceptionally good time to sell your home, and 2022 continues that trend. With far fewer properties than usual available, it’s a seller’s market. Homes are selling quickly, and often at a premium. If you’ve thought about moving for work or perhaps to be closer to family, 2022 may be your ‘golden ticket’ year. Whether you’ve already sold your home or are making plans to do so now, keep the following information in mind.
Capital Gains Exclusion
The IRS allows a generous exclusion for capital gains on the sale of your primary residence. When you sell your home, you can write off the first $250,000 of the profits—per person! This means that married couples filing a joint return qualify for a half-million-dollar exclusion when selling their primary home.
What if you own more than one home? It pays to think ahead when you’re planning to sell. The IRS allows just one capital gains exclusion on a primary residence every five years. So, if you own multiple homes and you’re planning to sell, consider which home you want to designate as your primary residence on your taxes.
TAKE NOTE! Tax law states that you must live at a residence for at least two years in in order to qualify for the exclusion.
“Can I deduct the cost of my new kitchen / bathroom?” Home improvements can certainly increase the value of your home, which may benefit your bottom line when it’s time to sell. However, home improvements don’t generally qualify as deductions. Since the government doesn’t tax the sale of a primary residence (for the first $250,000 in capital gains), you can’t write off the cost of improvements to the home. There are a few exceptions (such as medically necessary home improvements), so when in doubt, ask your tax professional.
- The standard deduction for single or married people filing separately was $12,400.
- The standard deduction for married people filing jointly was $24,800.
- The standard deduction for heads of households was $18,650.
About Jerry Rhodes, BBI Accounting
Jerry was born and raised in Akron, Ohio. He studied Finance at Ohio State University, graduated from OSU in 1999, and started his career as an accountant and analyst at the McDonald’s Accounting Center in Columbus, Ohio. Subsequently, he worked as an accountant and manager in the business office of the Ohio Department of Administrative Services for 5 years. He started BBI Accounting, LLC in 2004. He specializes in start-up consulting and tax return preparation for individuals, partnerships, S-corporations and small C-corporations. He is a QuickBooks Pro-Advisor and prepares tax returns in most states.
When Jerry isn’t advising or consulting, you can find him enjoying his personal 3 R’s – reading, writing and running.