UPDATE: The IRS has extended the income tax due date for individuals to May 17, 2021.

Last year was anything but ordinary in just about every way, but to quote Benjamin Franklin, “In this world, nothing can be said to be certain, except death and taxes.

While that’s probably not much of a comfort, it can be helpful to know that the process for filing taxes in 2021 is the same as it has always been, and the deadline is Tax Day, April 15 (last year, it was extended to July 15 due to the pandemic). If you’re a new homeowner filing taxes, though, things might look a bit different for you and you probably have at least a few questions. Here’s everything you need to know as a first-time homeowner filing federal taxes.

The Basics

When filing your taxes, you have the choice to claim the standard deduction, which reduces your income by a set amount, or itemize your deductions, which consists of a list of eligible expenses. Fortunately, you’re able to pick whichever option cuts your tax bill down the most. For taxes due this year, the standard deduction increased to $12,400 for single filers, $18,650 for heads of household, and $24,800 for married couples filing jointly.

While the majority of taxpayers claim the standard deduction, and it’s generally a faster and easier route, there are some instances that make itemized deductions a better option. For example, if you paid mortgage interest and real estate taxes, made significant charity donations, had major out-of-pocket medical bills, or experienced uninsured damage from a fire, flood, or theft, itemizing might work best for you.

Finally, while the actual tax rates didn’t change for this year, the tax brackets have shifted to adjust for inflation. This is typical, so don’t be surprised if you find yourself in a different bracket for 2021 than you did in 2020. There are seven brackets — 10%, 12%, 22%, 24%, 32%, 35%, and 37%, — and yours will depend on whether you’re filing as single, married, or head-of-household.

If You’re a New Homeowner…

As a new homeowner, you have the opportunity to save money on home-related expenses. This means that you may be able to deduct both the property taxes and interest paid on up to $750,000 of mortgage debt from your income taxes. However, it’s important to note that if you elect to itemize these deductions, you forego the standard deduction amount. 

If you do decide to go this route, start by making a checklist of what you plan to itemize. You’ll need the following documents:

  • A 1098 form: Your mortgage lender is required to send you IRS Form 1098 after the end of each tax year if you paid more than $600 in mortgage interest. This form lists exactly how much mortgage interest you paid during the tax year, and you can use it to determine your deduction.
  • Property tax records: You can generally deduct up to $10,000 of state and local real estate taxes from your taxable income, with the exception of government assessments for improvements to your property, such as sidewalks or sewage lines. You must be legally responsible for the tax to take the deduction.

If You Sold Your Home Within the Past Year…

You’ll be happy to know that you can generally exclude the capital gain you received from the sale of your home in 2020 (up to $250,000 for single filers and $500,000 for joint filers) if you meet the following criteria:

  • You must have maintained the home as your principal residence in two out of the five years prior
  • You must not have claimed the capital gains exclusion for the sale of another home during the previous two years

If You’re a Business Owner…

In many cases, as a business owner, you’re eligible to deduct home office expenses. However, this has changed a bit for 2020: if you worked remotely in the past year, you’ll only be able to take advantage of this deduction if you were self-employed. 

Fortunately, many of the other deductions are still available, depending on your specific business. These include:

  • Advertising and promotion
  • Business insurance
  • Education
  • Rent expenses
  • Salaries and benefits

If You Made Energy-Efficient Upgrades…

Good news! Solar panels, efficient windows, and hybrid cars are all deductible this year, so make sure you save your receipts.  

Some new electric and plug-in hybrid cars are eligible for a nonrefundable $7,500 tax credit, and if you’ve added a fueling station for a green car at your primary residence, you may be able to receive 30% of the installation cost, for a maximum of $1,000.

In addition, if you’ve made select energy-efficient home improvements, like heating, air conditioning, or water heater systems, you may qualify for a credit of up to 10% of the cost of the improvement (for a max of benefit of $500). If you’ve installed a photovoltaic, or solar power system, in 2020, you can get a 26% tax credit. If it was installed this year, that number drops to 22%.  

Owe more than you anticipated in taxes? Consider tapping into your home’s equity to pay off debts without adding another monthly bill. A Hometap Investment can give you access to up to 30% of your equity, up to $400,000 in cash without any monthly payments or interest. It only takes five minutes to find out if it might be a fit for you.

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YOU SHOULD KNOW…

We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.