Tax brackets, credits, and deductions change slightly each year, and sometimes they change dramatically with new laws. Though there haven’t been any major changes in 2019 that will affect your 2019 tax return, there are some recent changes to things like mortgage interest deductions and personal deductions you should keep in mind. Here’s what homeowners need to know about filing taxes in 2020.

This newsletter post is not legal or financial advice.
Always consult with a tax expert before filing your taxes.  

The Basics for Tax Filing in 2020

Last year, all taxpayers saw a number of changes to their tax returns from President Trump’s Tax Cuts and Jobs Act (TCJA). These changes are still in effect, but filing your taxes this year in 2020 will be very similar to last year. To recap, here are some of the biggest changes from the TCJA:

• The personal exemption was eliminated and standard deduction increased: $12,200 for individuals, $18,350 for heads of household, and $24,400 for married couples.
• Deductible state, local, and property taxes are now limited to $10,000
• Mortgage interest debt ceiling reduced from $1.1 million to $750,000

When are Taxes Due in 2020? 

One of the most important things you need to know about filing taxes in 2020 is when your tax return is due. Your 2019 tax return is due on Wednesday, April 15, 2020, unless you file for an extension. It’s a good idea to get necessary documents together well before then, so you have time to track down anything that’s missing.

What Documents Do Homeowners Need to File Taxes in 2020? 

If you are employed, you’ll need your W-2s to complete your taxes, as well as other documents for other types of income or investments. To claim tax credits and deductions specifically for homeowners, you’ll need a few different documents.

• Form 1098 for the home mortgage interest deduction
• Records of property taxes paid if you itemize your return
• Home equity loan interest paid
• Records of home improvements and home improvements materials

Tax Credits and Deductions for Homeowners in 2020

All of these tax credits and deductions for homeowners in 2020 are only available on an itemized return. Since the standard deduction increased after the Tax Cuts and Jobs Act, it might not be worth it to itemize. You’ll want to add up all the deductions you could get from itemizing, including deductions for healthcare expenses, educational expenses, and other expenses, and see if you’ll get more from this than your standard deduction.

Deducting Mortgage Interest on Your 2019 Return

The mortgage interest deduction is one of the most important things homeowners should know about filing taxes in 2020. If you own a home, the interest that you pay on your mortgage is deductible. Your lender will provide Form 1098 showing how much you paid on mortgage interest. This deduction is for mortgage interest only, so you can’t deduct things like mortgage insurance, homeowners insurance, title insurance, or other costs. Also, you can only deduct interest on $750,000 of debt or less. If your home is more than this, only a portion of the mortgage interest you paid is deductible. You can use this deduction for a primary or second home, with some stipulations.

You’ll need to itemize your return to benefit from this deduction, so if your mortgage interest is less than your standard deduction ($12,200 for single people and $24,400 for married couples) then it might not be worth it to take this deduction. You’ll want to add up the other itemized deductions you could take advantage of to find the biggest benefits.

Deducting Home Equity Loan Interest on Your 2019 Return 

Before the TCJA, you could have deducted interest from your home equity loan regardless of what you used the loan for. Now, you can only deduct this interest if you used the loan to improve your home value. For example, if you purchased a fixer-upper intending to remodel and renovate it, and you took out a home equity loan to do it, you could deduct the interest you pay. This interest is deductible in the same way as your mortgage interest (see above), as long as it is used to repair or remodel your home. The deductible interest is subject to the same ceiling as the previous deduction, and you must combine the total debt. This means the total debt you can deduct interest from cannot be greater than $750,000.

Deducting Property Taxes and Local Income Tax 

Before the TCJA, a homeowner could deduct all of the property taxes they paid throughout the year. It was also possible to pay property taxes early if you had a good year, or expected a tougher time later on. The TCJA put a $10,000 cap on deductible property taxes as well as state and local income taxes. This means, if you add up your property taxes and your state and local income taxes, you can only deduct $10,000 of this.

These important deductions for homeowners in 2020 can help you keep more of your hard-earned money. These deductions can also make it easier to own a home, and make your budget more manageable. Talk to your tax preparer about tax deductions you can use as a homeowner, and any documents you’ll need to claim them.

Article courtesy of Berhshire HomeServices Tomie Raines Realtors

Statistics vary by area, but experts estimate that between 30 and 60 percent of taxable property in the United States is over-assessed, and this leads to higher property tax bills. Yet typically fewer than 5 percent of taxpayers challenge their assessments, even though the majority who do so win at least a partial victory when properly prepared.

Are your property taxes too high?
Your 2020 tax assessment, arriving in February, will outline county, city and school taxes, as well as special assessments. Search online for your county and/or local taxing authority assessor’s office. This will provide the property information used to assess the tax value of your home. Check the accuracy of the assessor’s math and description of your property. Compare this to your bill and make sure your square footage, lot size, number of bedrooms and baths are listed correctly.

Mistakes Happen
Assessor records were once recorded on index cards. Errors have been made when this data was transferred to modern electronic records. A two-story may be recorded as ranch, the record may indicate a finished basement where there’s a crawl space, or the stated square footage may be incorrect.

Prepare Your Appeal
The assessor will give you an opportunity to file an appeal. This is usually in March. Your tax statement will provide directions for arranging a meeting with the assessor.

Your meeting won’t go well unless you’re prepared with a rational argument. Your Berkshire Hathaway HomeServices Tomie Raines Realtor is a professional who may be able to help by providing you with a comparable market analysis of similar neighborhood homes sold during 2019. Choose three to five properties with the same age, size, and condition of your home, noting any differences between the homes, such as additions or other improvements.

Always remember that the assessor’s judgement is based on the numbers and details.
Being prepared is your best argument.

Mortgage fraud has increased over the past year with about one out of every 109 mortgage applications having been found to contain false or misleading information, according to real estate data firm CoreLogic.  Because home prices are rising and demand is strong, most mortgage fraud in this type of market is motivated by borrowers trying to qualify for a mortgage.  Undisclosed liabilities, credit repair, questionable down payment sources, and income falsification have been the most common misrepresentations.

CoreLogic identifies the following as the most common types of mortgage fraud:

• Income fraud:  An applicant misrepresents the existence, continuance, source, or amount of their income.
• Occupancy fraud:  An applicant deliberately misstates the intended use of a property as a primary or secondary residence or an investment.
• Transaction fraud:  The applicant misrepresents the nature of the transaction, such as an undisclosed agreement between parties, falsified down payments, non-arm’s-length sale, or use of a straw buyer.
• Property fraud:  An applicant intentionally misrepresents information about the property or its value.
• Undisclosed real estate debt:  An applicant fails to disclose additional real estate debt or previous foreclosures.
• Identity fraud:  An applicant alters their identity or credit history, or uses a false identity.

The City of East Lansing has introduced an income tax for its residents and those who work in the community.  At the same time the city has reduced residential property tax.

How Much is the East Lansing Income Tax?

Those living in East Lansing will pay an income tax of 1% and those working in East Lansing but living outside the city will pay 0.5%.

Retirement income, such as that from social security or 401k plans, is not subject to the tax. Also, those who already pay income tax to another city, such as Lansing, will not pay tax again. Instead, the income tax will be split between the two.

How Does This Affect Property Taxes?

To offset some of the tax burden on East Lansing residents, property taxes will be cut 5 mills, which, city officials say, amounts to about 10% less property taxes on average.

When and How Long is the City Tax Effective?

East Lansing income tax starts at the beginning of next year, on January 1, 2019. As a City Charter amendment, the tax cannot be changed by the city officials alone at any time; any changes to it will require another vote and approval by residents. However, the amendment is time limited to 12 years.

What Does the Tax Fund?

The City of East Lansing plans to use the tax fund for police and fire protection; infrastructure (maintenance and improvement of streets and sidewalks; water and sewer systems; and parks, recreation and City-owned facilities) and supplemental payments for unfunded pension liabilities for retired City employees.

Why is a City Tax Necessary?

City officials explain long-term financial changes have created financial planning challenges, particularly where city employee pension plans are concerned. Though the number of city employees has fallen roughly 30% since 2001, the number of pensioners has increased as more employees have retired. Lower market returns on pension investment plans, approximately $1.5 million less state allocated sales tax revenue since 2001, a lack of tax revenue from tax-exempt Michigan State University, and a drop in property values after the 2009 recession, have created the city’s present financial situation.

By law, all city employee pension plans must be funded, and not providing additional funds would require city officials to make up the difference from other city services. The 2019 and 2020 budget outlines showed that without additional funds the city would need to cut police, fire, and Emergency Medical staff, as well as closing the East Lansing Aquatic Center and Hannah Community Center.  With the income tax approved, the more drastic cuts will likely not be necessary and East Lansing residents will continue to enjoy quality public safety, infrastructure and amenities that help to makes East Lansing one of the best places to live in America.