How NYC owners and renters can save $ on their taxes
Living in New York City is expensive and as the April 15th tax filing deadline approaches—it’s a good idea to consider ways you can save money through deductions and credits. Your savings will vary depending on whether you are a freelancer or salaried employee, and rent or own—and if you own, whether or not you have a mortgage.
If you work from home you may be able to deduct a portion of your expenses like utilities and insurance from your taxes. Not all deductions are related to housing, of course; there are specific programs for teachers, credits for students in higher education, and tax write-off opportunities for charitable donations, but here are the deductions and credits to consider when it comes to housing in NYC.
Mortgage interest deduction
If you own a co-op or condo in NYC and purchased it with help from a bank, you can deduct the interest on the first $750,000 of what you owe. This number shrinks to $375,000 if you’re married and filing separately. If your mortgage dates back to before December 16th, 2017 you can deduct the interest on the first $1 million or $500,000 if you’re married and filing separately.
You can choose whether to make standard or itemized deductions. The standard deduction for 2020 is up to $24,800 for a married couple. More New Yorkers are taking standard deductions as a result of the tax overhaul in 2018, which increased standard deductions and reduced how much of your state and local tax (SALT) you could deduct, capping it at $10,000.
If you’re a co-op owner, to qualify for the tax deductions, the building must be 80 percent owner-occupied.
Work expenses and home office deduction
Whether you rent or own, if you work from home, you may be able to deduct expenses related to your business, including a percentage of your property taxes and utilities. There are specific requirements to qualify for deductions in this way.
For example, you need to meet patients or clients at your apartment or use the space as your main workplace. An IRS flow chart can help you determine whether you are eligible for deductions. If you’re an employee who works from home just because it’s convenient you are unlikely to qualify.
The home office calculations are based on the percentage of your apartment that’s occupied by your workspace. So, if your home office takes up 10 percent of your apartment, you can deduct 10 percent of home-related expenses. In some cases, you can also deduct for office furnishings.
Home office deductions are a gaping gray area in the tax code but be careful of inflating expenses or under-reporting your income. Not only might you face an audit but she points out, if you want to buy an apartment in the future “it’s harder to show a bank that you have high enough earnings to support a mortgage and it could affect your social security and impact what you get in retirement.”
Property tax deduction
As the owner of a condo, you receive a tax bill separately, but if you own a co-op, the tax is included in your maintenance and you will get a statement from the board or management company saying what portion of the payment is mortgage and what portion is property taxes.
The state and city income taxes are very high in NYC, now that SALT deductions are capped at $10,000, fewer people opt for itemized deductions.
Overall the effect has been that not that many people can take theses itemized deductions any more because the standard deductions are higher than all these capped amounts of itemized deductions.
Mortgage points
Mortgage points are basically mortgage interest paid in advance. If you pay the interest in advance to the bank, they reduce the rate. To use this to your advantage for tax purposes, you have a choice whether you take the deduction in one year or stretch it out.
If you do have a year where you’ve paid mortgage points in advance it might be beneficial to take all those deductions in one year, helping you get over the standard threshold,
Energy-saving home improvements
It may be possible to get a tax credit for making your apartment or townhouse more energy-efficient. For example, the credit for putting in solar electricity panels or a solar water heating system is offered through to the end of 2021.
Home equity loans for renovations
If you take out a home equity loan and put the money back into the property via a remodel, the interest will typically be deductible for tax purposes. Interest on the same loan used to pay off your credit card won’t be.
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