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6 Upgrades That’ll Help Sell Your Home During the Pandemic—and Beyond

September 24, 2020

home improvements to make before you sell

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If you imagined 2020 was the year you would finally list your house for sale, you may have hit the brakes on those plans when the coronavirus pandemic arrived.

But now, we’re more than six months into the COVID-19 era with no clear end in sight. As many people continue working and logging in to school from home, the real estate market is again heating up with buyers eager to upgrade to a new home.

So stop putting it off: Now is the time to step on the gas in preparing your home to sell. We talked with experts to learn which home improvements will hit the right note with buyers during the pandemic (and beyond).

1. Upgrade your outdoor space

Most of us are suffering from an acute case of cabin fever these days. It’s little wonder that outdoor space has become more important than ever to prospective buyers.

“Even pools are becoming more popular in areas where they weren’t before,” says Bill Walker, chief operating officer of Kukun, a web resource for home improvements.

That doesn’t mean you need to splurge on a new in-ground pool; even a minor landscaping refresh can make a big difference and increase curb appeal. Depending on your budget and your neighborhood, you might also consider adding an in-ground fire pit or outdoor kitchen to maximize your outdoor space.

If you live in a cooler climate, extending the usability of your outdoor space will be a big draw for buyers.

“Get a low-cost outdoor heater and area rug to stage the space as an outdoor living room,” says Francie Malina, a real estate agent in New York’s Westchester County.

2. Create a functional home office or classroom

Many workers aren’t heading back to the office until 2021 or even later, which means home office space is at a premium, along with space for kids to log in to their virtual classrooms.

“People need a dedicated space for multiple people to be able to be on calls at the same time,” says Walker, who currently works at home alongside his wife, and his kids attending school virtually. “It definitely creates challenges when we all need to be on calls and need space to work.

Even if you don’t need two home offices or a remote learning station for your own family, consider staging your home to show the possibilities for buyers.

“Staging a guest bedroom as a home office or classroom is a good idea,” Walker says. “The potential buyer can see the room being used in a versatile way and visualize it for themselves.”

Plus, most of us host guests in our guest rooms for less than a month per year, Walker says—and probably even less during the pandemic.

3. Add separation of space

Open floor plans are so 2019.

“Open floor plans are losing a bit of luster,” Malina says. “Homeowners are looking for distinct spaces for family members to work or study.”

If your space isn’t well-segmented, you may want to create separate spaces by adding barn doors or pocket doors—or even room dividers for a quick and easy solution.

Having distinct rooms helps to minimize volume from other people’s activities, and can also create a different feeling in each part of the house.

“As people are spending more time at home, they want room and different environments to not feel stuck inside,” Walker says.

4. Add space for a home gym

Many people are forgoing the gym during the pandemic, preferring to work up a sweat from home to minimize risks of coronavirus transmission. That means people are looking for space to house gym equipment, from yoga mats to treadmills and stationary bikes.

Your home may not have the space for a fully equipped home gym, but you can still carve out a corner where home buyers will be able to picture their future at-home HIIT workouts or yoga flows.

5. Give your in-law suite a makeover

If you have a guest house, this can be an attractive feature for buyers right now—especially those with multigenerational households, or people looking for a potential source of rental income.

“With people bringing elderly family members home, [additional dwelling units] are a good option, especially if there is a kitchen and bathroom,” Walker says. “Even if this space isn’t used for personal reasons, it can be an investment property.”

6. Spruce up the laundry room

Concerns about cleanliness and hygiene have been at an all-time high during the pandemic, which means “laundry rooms are more important than pre-COVID,” Malina says.

People are doing laundry more often after running errands, and many of us have become more diligent about washing our bed linens. Plus, who couldn’t use more room for ironing, folding, and hang-drying clothes?

“Having a dedicated space to do laundry is a wonderful luxury, and buyers often want the space to be beautiful like the rest of their homes,” Malina says.

The post 6 Upgrades That’ll Help Sell Your Home During the Pandemic—and Beyond appeared first on Real Estate News & Insights | realtor.com®.

The Next Room To Boom: How To Promote Your Home Office Space and Draw in Buyers

September 11, 2020

home office

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It’s been six months since many of us were last in the office, tapping away on our ergonomic keyboards and drawing on whiteboards in conference rooms during (gasp!) in-person meetings.

Since then, we’ve been forced to find a new path forward in our homes, to create feasible workspaces where there really are none. And frankly, the kitchen table just isn’t cutting it anymore.

Buyer demand for home office space has accelerated during the pandemic. In a realtor.com® survey conducted this summer, 63% of respondents indicated that they plan to buy a new home in light of their ability to work remotely. And, on average, listings featuring a home office command a 3.4% price premium and sell nine days faster than listings without one, according to realtor.com data.

“Showcasing a dedicated working area can help attract buyers to your property,” says Jennifer Smith, a real estate agent at Southern Dream Homes.

So, sellers, take note: If you have a home office, now’s the time to promote it. Here’s how to set up a space that will bring in the buyers and seal the deal.

Be mindful when converting a room into a home office

If you don’t have an official home office, you might be frantically looking around your house, wondering which room could be converted into a workspace. But before you go all in swapping out guest beds for built-in desks and bookshelves, know this: While buyers are looking for home office space, bedrooms still take priority, according to real estate agent Susan Bozinovic of Century 21 Town & Country. And you could inadvertently turn off buyers if one of your three bedrooms suddenly works only as a home office.

Instead, look for opportunities to create dual-purpose spaces. After all, you’re probably not entertaining many guests during the pandemic (we hope), so now’s a great time to create a combination guest room and office. Remove the bed, and replace it with a sleeper sofa or love seat.

“This will result in less visual clutter while you’re working in the room, but allow it to easily be transformed back to a bedroom for guests,” says Smith.

Choose a free-standing desk to fit the space without overwhelming it. Or consider a wall-mounted desk as an alternative.

“They can be installed in virtually any room of a home and can be easily put away when not in use,” says Smith.

And don’t forget to update the closet.

Maximize your closet space with shelves and containers to store office and bedroom supplies, while also making the space available to store your guests’ belongings,” recommends Smith.

Short on bedrooms? Try carving out space in another area such as the dining room. Keep the dining table, but remove the buffet or remove the leaves in the table and extra chairs to make room for a chair and desk.

“As a seller, you are not erasing the dining room, but signaling to the buyer that the room can be repurposed further to suit an office,” says Bozinovic.

Pick a quiet area

The noisy central hub of any home is hardly conducive to productivity, so setting up a workspace in the kitchen or the TV room isn’t likely to woo buyers. If you currently don’t have a designated home office, consider the location when staging one.

“It’s best to choose a room with adequate space that’s far from the main living spaces and not frequented by family members or guests,” Smith advises.

Transform an unused area into a workspace

Take a look around at the underused areas in your home, and you can probably find a place to carve out a workspace buyers will covet. If you have a finished, walkout basement, you can turn that into a comfy and private workspace. The area underneath the staircase or the dead space at the top of a staircase, or even an alcove, makes a compact office.

If you have no choice but to set up a home office in the main area of the house, present it in the most appealing way possible.

“Separate the work area from the rest of the room with portable dividers such as a curtain, a folding screen, partition wall, or even tall houseplants,” says Smith.

Keep the area tidy, and neatly bundle up computer and extension cords. Illuminate a poorly lit zone with a small desk lamp.

Flaunt connectivity

If you have access to dependable and fast internet, flaunt it. Buyers are looking to make sure there are enough outlets, ways to minimize cords, and locations for wall-mounted routers, Bozinovic says.

Also critically important is the quality of the Wi-Fi. Buyers want dependable and fast internet with ample bandwidth to be productive at home.

Stage your home office as you would the rest of your house

If you already have a dedicated home office, the time-honored advice of staging—beginning with a clean and clutter-free space, void of personal objects—stands true. If needed, invest in fashionable, functional office storage options like wall shelves or a filing cabinet, Smith says.

“For decorating and design, it’s best to keep colors neutral and avoid bright paint or busy patterns on the walls,” she adds.

But the office shouldn’t be too bland. Create ambiance with pops of color in office essentials such as an area rug, houseplants in pretty pots, or fresh flowers. If blinds are the only window covering, consider buying some curtains or drapes to add warmth. Be sure to raise blinds, draw the curtains to the side to allow natural light, and feature a lovely view if you have one.

The desk should be featured prominently in the room, Bozinovic says. After all, it is the main component. Facing the desk to the entrance looks more dramatic, hides background clutter, and enhances the room’s purpose—all while offering a welcoming atmosphere.

The post The Next Room To Boom: How To Promote Your Home Office Space and Draw in Buyers appeared first on Real Estate News & Insights | realtor.com®.

How to Take a Home Office Tax Deduction When You Work From Home

February 18, 2020

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Of all the tax breaks available, the home office tax deduction is among the murkiest and most misunderstood. And the passage of the 2018 Tax Cuts and Jobs Act has made things even more complicated.

So if you work at home, what should you do? Allow us to explain exactly who can take the home office tax deduction these days—and who can’t—as well as how to do it right. Here’s what you need to know before filing this year.

Who can claim the home office tax deduction?

We’ve got some good news and bad news. The bad news? In years past, if you worked for a company (and received a W-2) but worked from home occasionally or full-time, you could claim a home office tax deduction. But not anymore.

“There is a major change to the home office deduction: It is no longer available for company employees,” says Bill Abel, tax manager at Sensiba San Filippo in Boulder, CO. “This has many remote employees frustrated.”

But there is a ray of hope for these W-2 telecommuters. You could see if your employer will allow you to change your work status from an employee to an independent contractor (also discuss this option with a tax adviser), which would allow you to continue taking this deduction. Consider the pros and cons of such a move beyond just the tax benefits, however.

Another small loophole also exists, if your employer is willing to play along: Just ask your employer to set up what’s called an “accountable plan.”

For example, instead of being paid $100,000, your employer could pay you $95,000 in wages plus a $5,000 home office expense reimbursement, making your salary the same—while saving you more on taxes.

As for the good news? If you’re one of the 40 million or so people out there who are self-employed—from business owners to bloggers—you can still continue to take this deduction.

How to take a home office deduction if you’re self-employed

If you’re self-employed, you have every right to take a home office tax deduction, but that’s not to say it’s easy.

In a nutshell, you’ll be writing off part of your home expenses on your tax return by separating out the costs associated with using your home for personal purposes (making pancakes) and business (answering work email).

To claim the deduction, an area of your home has to be designated as your principal place of business, and—the clincher—used exclusively for work. Everything in that designated space needs to be for work purposes only.

What makes an office an office?

To be clear, that room you work in which doubles as a guest room when mom visits won’t pass muster, even if you spend 40 hours a week there, says Abby Eisenkraft, a financial expert and author of “101 Ways to Stay Off the IRS Radar.” So if you really want to do things right, have mom sleep on the couch!

If, say, your desk is parked in a corner of your bedroom or part of an open floor plan, simply measure the space you use for your office, whether or not there are walls.

The key is that the area must be used only by you, just for work—not to peck out personal email. To make that delineation easier, you can even put up a physical barrier like a partition or shelves.

And according to the IRS, an office can also be a “separate free-standing structure, such as a studio, garage, or barn.”

How to claim a home office tax deduction

The IRS offers two ways to calculate a home office tax deduction, one simple, the other a bit more involved, says Jeff Morris, accounting partner at Nathaniel Jacobson, serving Maryland and Washington, DC.

The simple method: Figure out the square footage of your home that you use for business purposes. Each square foot you use for work is worth $5, and you can claim up to 300 square feet, for a maximum annual claim of $1,500, says Morris.

The complicated method: Track all the costs of your home (think maintenance, insurance, repairs, utilities, etc.) and depreciation (normal wear and tear).

Next, separate and allocate those expenses based on the percentage of the home you use solely for business purposes. So if your office space breaks down to 10% of your home’s total square footage, you can deduct 10% of your home costs—which could add up to a sizable chunk of change. The key to using this deduction is keeping careful records.

Isn’t the home office tax deduction a red flag for an audit?

Nope. In fact, the IRS simplified their method of measuring out your office space to take the audit scare out of the home office tax deduction.

“This might surprise some people, given the fear of an audit that the home office deduction used to strike in the hearts of many taxpayers,” says Morris.

The reality is that the deduction is becoming increasingly common, and it doesn’t make a taxpayer any more susceptible to an audit than any other deduction a small-business owner may take.

The post How to Take a Home Office Tax Deduction When You Work From Home appeared first on Real Estate News & Insights | realtor.com®.

Why I Don’t Take a Home Office Deduction—Even Though I Could

April 3, 2019

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As a full-time, freelance writer and editor, I work from home. But I’ve never taken a home office deduction on my tax return.

Trust me, I know it’s tempting: Freelancers need every tax break they can get! But my dad, a certified public accountant, has long advised me against it. Plus, the new Tax Cuts and Job Acts of 2017 has placed even more limits on the home office deduction that make it even less palatable.

Not sure if you should take a home office deduction? Here are some of the reasons I’ve refrained—reasons that might speak to your situation, too.

You may no longer qualify

For starters, the home office deduction is now available only to self-employed individuals—this does not include W-2 workers who occasionally work from home. This change actually works in my favor, since I’m a full-time freelancer.

Still, not all full-time freelancers should necessarily take this deduction, because in order to qualify, your space must meet the “exclusive use test.”

“It essentially means the area of your house that you use for the home office can only be used as a home office,” says Mike Slack, lead tax research analyst at the Tax Institute at H&R Block. “Any type of personal use of that room or space will preclude the availability of the deduction. That’s caused a lot of issues, because that can make it hard to satisfy. That’s going to be the one that knocks most people out of being able to claim it.”

This is the provision that had me worried about taking the home office deduction in the past. In the house where I previously lived, my office also doubled as a catch-all room. I used the closet in the room to store my clothes and shoes, and when we had guests, they stayed in the room on an air mattress.

Now, my new home’s office is a designated room used 100% for work, and I likely have a stronger argument for it qualifying for the deduction. Still, there are other reasons I still choose to abstain…

Claiming a home office deduction can be complicated

The IRS allows for two ways of applying the home office deduction: the regular (aka complicated) method and the simplified option.

For the regular/complicated method, a home office is valued by measuring its actual expenses against the overall residence’s expenses. Certain expenses like mortgage interest, taxes, maintenance, repairs, utilities, and depreciation can be deducted. Deductions are based on the percentage of the home devoted to business.

Because the regular method can be complex, the IRS introduced a simplified version in 2013, which established a standard deduction of $5 per square foot of the part of the home used for business, up to 300 square feet. However, the simple method could result in a lower deduction, depending on someone’s total expenses.

“Some people called it a safe harbor,” Slack says. “You’d still have to meet all the requirements for the deduction, but the record keeping would be less.”

Since my home office is only about 110 square feet, the deduction would likely be small—just $550 for the simplified version—and maybe not worth the trouble of the record keeping required.

You have to keep extensive records

This is the area that was the biggest turnoff for me when considering the home office deduction. It has always seemed too time-consuming and just an extra thing to deal with. The work involved felt like too much for the amount of the deduction that I could get.

Plus, I was worried about getting audited. Slack says in the past, the home office deduction was one of the “most highly audited areas of the tax law,” but he sees that changing. Still, if someone were audited, he says, the IRS would most likely recalculate an individual’s taxes without the deduction and impose some penalties and fees.

Homeowners need to keep all records related to the expenses of the home office, including documents for the purchase of the home, utility bills, property tax, insurance, and other records.

“You’re going to have to be able to allocate the purchase price between land and the building itself, and you’re going to also need to know the square footage, the overall square footage and then the square footage of the space you’re using,” Slack says. “So, that can be pretty voluminous.”

You may owe tax on the gain when you sell the home

Another reason that the home office deduction looked less attractive to me is that this deduction could come back and haunt me whenever we decide to sell the house. How? Because while the capital gains (aka profits) on the sale of a home is tax-free if the home is used strictly as a residential space (and is under the $250,000 capital gains cap per individual), things change when part of the home is allocated for business.

Individuals eligible for a home office deduction can claim a tax deduction for depreciation—a tax break to account for the wear and tear on the area of your home used for business. That’s all great, but once you sell, that nice tax break you took is offset by the fact that you have to pay taxes on any capital gains that stem from the sale of your office space. Translation: If 10% of a home’s square footage is designated as a home office, you’d have to pay tax on 10% of any capital gains you enjoy once you sell your home.

If, however, you forgo the home office deduction, the entire gain of a house sale would potentially be tax-free. In many cases, depending on how long you live there, the deprecation tax break taken for a home office could be less than the tax you could owe later on!

Not sure if you should take a home office deduction? Consulting a local tax professional can help determine if it’s right for you, or check out this guide on the home office tax deduction.

The post Why I Don’t Take a Home Office Deduction—Even Though I Could appeared first on Real Estate News & Insights | realtor.com®.

Your 2019 Home Tax Deduction Checklist: Did You Get Them All?

March 22, 2019

Your Home Tax Deduction Checklist: Did You Get Them All?

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Welcome to your home tax deduction checklist! For homeowners, this kind of guidance is essential in the wake of all the (confusing) changes ushered in by the new tax plan, the Tax Cuts and Jobs Act.

The biggest change? The standard deduction jumped to $12,200 for individuals, $18,350 for heads of household, and $24,400 for married couples filing jointly. And this higher number means you need to dig into all of your home expenses to see if their total sum tops the standard deduction, depending on your filing status. (If the total doesn’t surpass it, then you’ll just take the standard deduction on your taxes when you file.)

To help, here’s a list of all the tax breaks for homeowners.

Mortgage interest

In the past, you could deduct the interest from up to $1 million in mortgage debt (or $500,000 if you filed singly).

“But for loans taken out from Dec. 15, 2017, onward, only the interest on the first $750,000 of mortgage debt is deductible,” says William L. Hughes, a certified public accountant in Stuart, FL.

Mortgages are structured so that you start off paying more interest than principal. For example, in the first year of a $300,000, 30-year loan at a fixed 4% interest rate, you’d be deducting $10,920. (To find out how much you paid—or will pay—in mortgage interest any year, punch your numbers into our online mortgage calculator.)

Note that taking this deduction under the new tax law does require itemizing deductions, but it may be worth the hassle, especially for new homeowners.

Mortgage points

If you bought a home and paid points, then you can still deduct those from your taxes. They must be “true,” or discount, points, not origination points. After all, points are essentially mortgage interest that you prepay, so it makes sense that they’d be treated like the rest of your mortgage interest. Each point is 1% of the loan amount, so if you paid 2 points on that $300,000 loan, you can deduct $6,000.

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Watch: 5 Pet-Related Tax Deductions We Bet You Didn’t Know Of

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Private mortgage insurance

For now at least, Congress has renewed this deduction.

If you can’t make a 20% down payment on your home, most lenders require that you pay private mortgage insurance, or PMI. The upside: It’s tax-deductible as long as your adjusted gross income is less than $100,000. (For each $1,000 you make after that, you can deduct 10% less of your PMI, up to $109,000.) PMI is generally between 0.3% and 1.5% of the loan amount annually, so on a $300,000 loan, you’d be deducting between and $900 and $4,500.

Home equity debt interest

Homeowners often take out a home equity loan or home equity line of credit in order to tap into some quick cash—for college, weddings, home improvements, or otherwise—using their home as collateral. And up until 2017, homeowners could deduct the interest on home equity debts up to $100,000 for married joint filers.

Now? “Home equity debt interest deductions have been eliminated,” says Eric Bronnenkant, a certified public accountant and financial planner, and head of tax at Betterment. That is, unless you spend the money on one thing only: home improvements.

So if you’re eager to renovate that kitchen, this deduction still stands. But if you have to foot the bill for your daughter’s wedding, the IRS will no longer pitch in, explains Amy Jucoski, a certified financial planner and national planning manager at Abbot Downing.

And unlike mortgage interest deductions, the new rules on home equity debt apply to all loans regardless of when they were taken. And to reap the benefit, your total debt—meaning your mortgage plus your home equity loan—can’t be more than the new $750,000 cap.

Property taxes

In the good ol’ days of 2017, your property taxes were fully tax-deductible.

This tax season, there’s a $10,000 cap on the combined amount of your property taxes, state and local income taxes, and (for states without income tax) deductible sales tax.

One bright side for landlords and those with vacation homes: “You can take deductions for all the properties you own, plus add your state income tax,” says Steven Weil, president of RMS Accounting, in Fort Lauderdale, FL.

Energy-efficient upgrades

Did you add solar panels or a solar-powered water heater last year? That means you can help yourself to a tax credit.

According to Bishop L. Toups, a taxation attorney in Venice, FL, qualifying solar electric panels and solar water heaters are good for a credit of 30% of the cost of the equipment and installation. For a $30,000 green investment, that’s a cool $9,000 back!

To qualify, the solar panels have to generate at least half of the energy used by the home, they have to be installed in your primary residence, and they can’t be used to heat a pool or hot tub (sorry!).

The credit will remain 30% of the cost for equipment installed between now until the end of 2019, 26% until the end of 2020, and 22% until the end of 2021.

Home office deduction

The home office tax deduction disappeared for all W-2 employees who have an office elsewhere that they could use if they wanted to. The only people who can continue taking this deduction are those who truly run their own business from home, says Joshua Hanover, a senior manager at Marks Paneth.

Using the simplified home office deduction, self-employed people can take $5 for every square foot of office space, up to a maximum of 300 square feet. For a 200-square-foot home office, you’re looking at a nice $1,000 deduction. Just don’t try any funny stuff—it has to be a dedicated home office, used only for work. Here’s more on the home office tax deduction.

The post Your 2019 Home Tax Deduction Checklist: Did You Get Them All? appeared first on Real Estate News & Insights | realtor.com®.

6 Tax Myths Even Smart Homeowners Believe Are True: How Many Misled You?

March 8, 2019

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Taxes are confusing enough as it is—throw in the recent Tax Cuts and Jobs Act overhaul, and it’s understandable if you’re flummoxed.

But fear not! With all the mayhem and misconceptions flying around this year now that the new tax code has taken effect, we’re here to set the record straight by highlighting the top tax myths that might dupe even the financial Einsteins among us.

So whether you want to enter this filing season with clear-eyed confidence or just test what you know, check out this list and ask yourself honestly: How many of these fake tax facts did you believe were true?

Tax myth No. 1: The mortgage interest deduction is gone

On the contrary, if you bought your home before Dec. 15, 2017, you’re in luck: You are grandfathered in under the old tax laws and can still deduct all of the interest on loans of up to $1 million, says Tom Wheelwright, certified public accountant and CEO of WealthAbility.com.

And for those who bought a home after Dec. 15, 2017, or plan to in the future, it’s not as bleak as many think. Mortgage interest is still deductible; it’s just that the deductible amount is capped at $750,000.

Tax myth No. 2: Property tax deductions are gone, too

Nope! In the past, most taxpayers could deduct state, city, and property taxes in their entirety. Under the new tax plan, these taxes are still deductible. However, there’s a cap of $10,000 per year, says Mario Costanz of Happy Tax.

In other words, property tax and mortgage interest deductions are far from gone—but one thing to consider is that the standard deduction nearly doubled—to $12,000 for single filers and $24,000 for married couples filing jointly. As such, it may not make sense for as many people to itemize their deductions unless it amounts to more than this high new bar.

Here’s more info on how to tell whether you should take the itemized or standard deduction.

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Watch: 5 Pet-Related Tax Deductions We Bet You Didn’t Know Of

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Tax myth No. 3: If you work from home, you can deduct a home office

Some people mistakenly think that anyone who fires up a laptop at the kitchen island has a “home office.” But to take a home office deduction, that area must not only be used regularly and exclusively for business, it also has to be the primary site of the business.

So if you turned a spare room into a dedicated workspace, you can claim it. But if you occasionally work in the living room, that’s not deductible, says Josh Zimmelman, owner of Westwood Tax & Consulting, a New York–based accounting firm with offices in Manhattan and Long Island.

Plus, things just got even stricter under the new tax codes.

In the past, office employees who occasionally worked from home could claim eligible home office deductions that might include, say, business expenses that were not reimbursed by your employer. But now, only self-employed people can deduct their home office in any way.

So if you own your own business, you’re fine; if you’re paid by W-2, you can kiss this deduction goodbye.

Here’s more about how to take a home office tax deduction.

Tax myth No. 4: You can deduct all of your home renovations

Sorry, DIYers: Home improvements are generally not tax-deductible unless the residence also serves as a rental property. But there are a few exceptions where homeowners can cash in.

The first is if modifications were made for medical purposes that don’t increase your property value, which might include installing railings or support bars, building ramps, widening doorways, lowering cabinets or electrical fixtures, and adding stair lifts. (You’ll need a letter from your doctor to prove the modifications are medically necessary to claim these deductions. Plus, those expenses must exceed 7.5% of your adjusted gross income.)

The other time you can deduct renovations is if they were made in order to sell your home. You can deduct those expenses as selling costs, as long as the home improvements were made within 90 days of closing.

Tax myth No. 5: All home equity interest is deductible

Homeowners used to turn to a home equity loan or line of credit (HELOC) for cash to make home improvements or pay for more general expenses (e.g., a child’s college tuition or wedding). And in past years, the interest on these loans was tax-deductible.

Not so anymore: HELOC interest is deductible only if the loan is used for a “substantial home improvement,” says professor David Reiss of Brooklyn College.

Also keep in mind that now, your total deductible mortgage and eligible home equity debt must be less than the $750,000 cap.

Tax myth No. 6: You can always deduct your moving expenses

Up until last year, taxpayers could deduct only a portion of moving expenses when they relocated for a new job that’s at least 50 miles farther from their former home than their old job location.

And per the new tax bill, no moving expenses of any kind are deductible. The only exceptions are for members of the armed forces on active duty.

The post 6 Tax Myths Even Smart Homeowners Believe Are True: How Many Misled You? appeared first on Real Estate News & Insights | realtor.com®.

5 Tax Breaks That Disappear This Year—and Some Loopholes That Offer Hope

March 5, 2019

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As you’ve no doubt heard, the U.S. tax code got a major overhaul with the new Tax Cuts and Jobs Act. So what does that mean for the return you’re filing right about now? It means you may not be able to take some deductions from the old tax code that saved you major bucks in the past. Ouch!

But it’s not quite as bad as you might think. Many tax breaks haven’t disappeared completely; rather they’ve just morphed a bit, redefining who qualifies and for how much. To clue you in to these new rules, here’s a rundown of five major tax breaks that have changed this filing year, and who still qualifies for them.

1. Home office tax deduction

You may have heard a rumor that the home office tax deduction went the way of the dodo. Yes, the deduction is gone for W-2 employees of companies who work in a home office on the occasional Friday.

“For non-self-employed people, the home office deduction is going away entirely,” says Eric Bronnenkant, certified public accountant, certified financial planner, and Betterment’s head of tax.

The loophole: If you’re self-employed full time, this deduction lives on. Here’s more info on how to take a home office tax deduction.

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Watch: 5 Pet-Related Tax Deductions We Bet You Didn’t Know Of

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2. Unlimited property tax

One of the biggest changes for homeowners in the new tax bill is the cap on deducting property taxes.

“Before, regardless of the amount, all property taxes were tax-deductible,” explains Bronnenkant. Yet this season, “the maximum you can deduct is $10,000, and that includes state and local income tax, property tax, and sales tax.”

So if you pay more than $10,000 a year between your state and local income taxes, property tax, and sales tax, anything exceeding that amount is no longer deductible. This is something to keep in mind as homeowners consider tax benefits of their current or future home.

The loophole: “It is worth noting that this limit applies to a taxpayer’s primary, and in some cases secondary, residence,” says Bill Abel, tax manager of Sensiba San Filippo in Boulder, CO. “But it may not apply to rental real estate property.”

Why? The $10,000 overall tax limit is applied on Schedule A as an itemized deduction, which would have no bearing on the tax deduction for a rental property on Schedule E. So if you’re a landlord, your deduction could edge past that $10,000 limit; make sure to max it out!

3. Moving expenses

If you moved in 2017, lucky you: You are the last to take advantage of the ability to deduct your moving expenses.

The loophole: Active members of the armed forces who moved (or move) after 2017 can still take this deduction, according to Patrick Leddy, a tax partner at Farmand, Farmand, and Farmand.

4. Mortgage interest

One major change for homeowners who purchased a house after Dec. 15, 2017, is that they will be allowed to deduct the interest on no more than $750,000 of acquisition debt—that’s a loan used to buy, build, or improve a main or secondary home, says Abel. This is in contrast to the $1,000,000 limit on acquisition debt, which still applies to existing loans incurred on or before Dec. 15, 2017.

The loophole: Homeowners who refinance their debt that existed on or before Dec. 15, 2017, are generally allowed to maintain their $1,000,000 limit from the original mortgage.

5. Interest on a home equity loan

A home equity loan is money you borrow using your home as collateral. This “second mortgage” (because it’s in addition to your original home loan) often takes the form of a home equity loan or home equity line of credit. Traditionally, the interest on these loans could be deducted up to $100,000 for married joint filers and $50,000 for individuals. And you could use that money to pay for anything—college tuition, a wedding, you name it.

But now, home equity loan interest is deductible only if it’s used for one purpose: to “buy, build, or improve” your home, according to the IRS. So if you’re dying to update your kitchen or add a half-bath, you’ll get a tax break from Uncle Sam. But if you want to tap your home equity to go to grad school, well, that’s on you.

More bad news: Unlike the mortgage interest deduction—where loans taken before Dec. 15, 2018, could be grandfathered into the old laws—home equity loans have no such exemption. People with existing HELOC debt take the hit just like homeowners applying for one now.

The loophole: To reclaim this deduction, you could refinance your second mortgage and your first into a new mortgage that lumps together both debts. This essentially turns your HELOC into a regular mortgage, which means that you can deduct that interest. Just remember that refinancing can be costly, and that this new loan will be subject to the new, smaller limits on deducting mortgage interest—$750,000.

Worried about losing all of these deductions? Don’t freak out!

Though the new tax plan is drastically changing how most people will file their taxes, it doesn’t necessarily mean that you will end up owing more. Deductions may be dropping, but so are the tax rates for most income groups. And the standard deduction grew to $24,000 for a married couple filing jointly. So, it may all balance out.

The post 5 Tax Breaks That Disappear This Year—and Some Loopholes That Offer Hope appeared first on Real Estate News & Insights | realtor.com®.

The Home Office Tax Deduction: One of the Most Misunderstood (and Dangerous) Tax Breaks

February 28, 2019

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Of all the tax breaks available, the home office tax deduction is among the most murky and misunderstood—and this tax filing season, the passage of the Tax Cuts and Jobs Act has made things even more complex.

So if you work at home, what should you do? Allow us to guide you through understanding who can take the home office tax deduction today—and who can’t—as well as how to do it right. Here’s what you need to know before filing this year.

Who can claim the home office tax deduction?

We’ve got some good news and bad news. The bad news? In years past, if you worked for a company (and received a W-2) but worked from home occasionally or full time, you could claim the home office tax deduction. But not anymore.

“There is a major change to the home office deduction: It is no longer available for company employees,” says Bill Abel, tax manager at Sensiba San Filippo in Boulder, CO.

The good news? If you’re one of the 40 million or so people out there who are self-employed—from business owners to bloggers—you can still continue to take this deduction.

“This has many remote employees frustrated,” says Abel.

But there is a ray of hope for these W-2 telecommuters: See if your employer will allow you to change your work status from an employee to an independent contractor (also discuss this option with a tax adviser), which would allow you to continue taking this deduction.

“There are many factors to consider before changing work status, but the new rules surrounding the home office deduction gives an increased incentive to consider becoming an independent contractor,” Abel adds.

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Watch: 5 Pet-Related Tax Deductions We Bet You Didn’t Know Of

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Another small loophole also exists, if your employer is willing to play along: Just ask your employer to set up what’s called an “accountable plan.”

For example, let’s say you were paid $100,000 in gross wages for 2017 and were able to deduct $5,000 in home office expenses. Under the new plan, your employer could instead pay you $95,000 in wages plus a $5,000 home office expense reimbursement, making your salary the same for both years—while also saving you more on taxes.

How to take a home office deduction if you’re self-employed

If you’re self-employed, you have every right to take a home office tax deduction, but that’s not to say it’s easy. In a nutshell, you’ll be writing off part of your home expenses on your tax return by separating out the costs associated with using your home for personal purposes (making pancakes) and business (answering work email).

To claim the deduction, an area of your home has to be designated as your principal place of business, and—the clincher—used exclusively for work.

What makes an office an office?

To be clear, that room you work in which doubles as a guest room when mom visits won’t pass muster, even if you spend 40 hours a week there, says Abby Eisenkraft, financial expert and author of “101 Ways to Stay Off the IRS Radar.” So if you really want to do things right, have mom sleep on the couch!

If, say, your desk is parked in a corner of your bedroom or part of an open floor plan, simply measure the space you use for your office, whether or not there are walls. The key is the area must be used only by you, just for work—not to peck out personal email. To make that delineation easier, you can even put up a physical barrier like a partition or shelves.

How to claim a home office tax deduction

The IRS offers two ways to calculate a home office tax deduction—one simple, the other a bit more involved, says Jeff Morris, accounting partner at Nathaniel Jacobson, serving Maryland and Washington, DC.

The simple method: Figure out the square footage of your home that you use for business purposes. Each square foot you use for work is worth $5, and you can claim up to 300 square feet, for a maximum annual claim of $1,500, says Morris.

The complicated method: Track all the costs of your home (think maintenance, insurance, repairs, utilities, etc.) and depreciation (normal wear and tear).

Next, separate and allocate those expenses based on the percentage of the home you use solely for business purposes. So if your office space breaks down to 10% of your home’s total square footage, you can deduct 10% of your home costs—which could add up to a sizable chunk of change. The key to using this deduction is keeping careful records.

 

Isn’t the home office tax deduction a red flag for an audit?

Nope. In fact, the IRS created the simplified method of square foot of office space to take the audit scare out of the home office tax deduction.

“This might surprise some people, given the fear of an audit that the home office deduction used to strike in the hearts of many taxpayers,” says Morris.

The reality is that the deduction is becoming increasingly common, and it doesn’t make a taxpayer any more susceptible to an audit than any other deduction a small-business owner may take.

The post The Home Office Tax Deduction: One of the Most Misunderstood (and Dangerous) Tax Breaks appeared first on Real Estate News & Insights | realtor.com®.