Should you be itemizing your taxes? Tax law experts weigh in
As this year’s April 18 federal tax filing deadline looms, an expert has good news and bad news for homeowners who haven’t yet completed their returns.
The bad news: Thanks to historically low interest rates, as well as reduced housing prices due to the Great Recession, the home-mortgage-interest tax deduction doesn’t provide much of a benefit to many middle-class homeowners.
The good news: It generally takes less time to prepare a tax return if you don’t itemize, and the home-mortgage-interest deduction is the main reason many homeowners do. So those without much interest to deduct may be able to spend time on something else this weekend.
Except for those with expensive homes—and, often, relatively new mortgages in which most of the payments are interest rather than principal, the amount of the interest deduction may not be high enough to justify itemizing, real estate consultant John Burns tells the Palm Beach Post.
That’s especially true for those who are married: Back in 1972, the standard marital deduction was $1,300. But today it is $12,600, so for those who are married the first $12,600 of itemized deductions is essentially cancelled out. For singles, the standard deduction is $6,300.
Property taxes can also be itemized, so that increases the deductible amount attributable to home ownership. However, even for someone with a brand-new 30-year mortgage (and hence with initial payments that are largely comprised of interest), a year’s worth of interest on a $200,000 mortgage at 3.5 percent is only $7,000.
For someone with a new mortgage of $1 million at the same rate, the annual interest adds up to $32,000.
“Every April 15, the most financially qualified renters in the country used to feel the pain of not owning by writing a check to the IRS,” Burns says. “For most, that is no longer the case.”
Other deductions that can tip the balance in favor of itemizing, when all are totaled up, include medical expenses and charitable donations, notes the Detroit Free Press.
Related coverage:
Orange County Register: “4 home-related tax deductions not to overlook”
Motley Fool: “The Average American Doesn’t Itemize Deductions. Should You?”
