As you compile all the information needed for your 2022 tax returns, you may be wondering what deductions homeowners are allowed in 2022. Here’s a breakdown of the standard deductions, as well as which deductions Virginia homeowners can take on their federal and state returns.
Standard vs. Itemized Deductions
It’s important to know the difference between standard and itemized deductions. Both can lower your overall tax burden by reducing the base taxable income figure. For 2022 taxes (filed in 2023), standard federal deductions are:
$12,950 for single and married individuals filing taxes separately
$25,900 for married couples filing jointly
$19,400 for heads of households
In Virginia, the standard state deductions are:
$8,000 for single filers
$16,000 for married joint filers
Itemized deductions can be beneficial if they exceed these standard deductions thresholds.
Notable Changes to 2022 Taxes
There are three other notable changes to the federal tax code that will affect all Virginians:
A reduced child tax credit and a reduction in the child and dependent care tax credit.
Charitable donations apply only if you itemize. You used to be able to claim a deduction for up to $300 for cash donations by single filers and $600 for married couples filing jointly, regardless of whether you itemized or not.
More people will receive 1099-Ks for third-party payments. If you received payments through Venmo, PayPal, or another program, the threshold goes from 200 transactions worth an aggregate above $20,000, down $600 for as little as one transaction.
If you are over age 65 or blind, you are eligible for an additional standard deduction on federal returns of $1,500 to $1,850 depending on your filing status. If you are both blind and over 65, this amount doubles.
What Can’t be Deducted
Before we get into what you can deduct as a homeowner who plans to itemize his tax returns, there are some home expenses that cannot be included. They are:
Fire insurance
Homeowner insurance premiums
The principal amount of a mortgage payment
Wages for domestic help
Depreciation
Utilities like gas, electricity, or water
Down payments
Costs for refinancing a mortgage, like loan assumption, credit reports, and appraisal fees
Home association fees
Mortgage insurance (this was deductible in prior years)
Rent for living in the home before closing
What Virginia Homeowners Can Deduct
With all of that said, here’s what you can deduct if you itemize your taxes.
Mortgage Interest
The Tax Cuts and Jobs Act reduced the amount of mortgage interest you can deduct in 2022 from $1 million to $750,000 as a single filer or married couple filing jointly if you signed your mortgage on December 16, 2017, or later. If you are married but filing separately, the deduction limit is $375,000 for each party. If you signed your mortgage prior to this date, you can deduct interest up to $1 million.
Virginia tax code allows you to claim mortgage interest paid on a principal residence, provide you show it has already been paid.
Mortgage Insurance
PMI, or Private Mortgage Insurance, protects your lender if you can’t make payments on your mortgage. These payments can be itemized on your tax return.
Home Equity Loan Interest
Like regular mortgage interest. You can deduct the interest on home equity loans and home equity lines of credit. You have to prove, however, that you used this money to pay for a home improvement and not purchase a car or take a vacation. Prior to the Tax Cuts and Jobs Act of 2017, you could deduct the interest on these loans regardless of how you spent the funds.
Discount Points
A discount point can be used at the time you take out your mortgage to reduce your interest rate on the loan. One discount point equals 1% of the mortgage amount.
You can deduct the cost of these discount points, but “loan origination points” (the fees you pay for the evaluation, processing, and approval of your mortgage loan) are not deductible because they don’t affect the interest rate of your loan.
Property Taxes
Property taxes are state and local taxes. On your federal return, you can deduct up to $10,000 if married and filing jointly or $5,000 if you are single or married filing separately.
In Virginia, both personal property taxes and real estate/land taxes are deductible if you itemize.
Necessary Home Improvements
If you decide to upgrade your fully functional kitchen, you probably can’t claim the costs for tax purposes. If, however, you have to adapt your home for medical access or safety, you can deduct these expenses.
Home Office Expenses
If you work from home occasionally for an employer, you can’t deduct office space or office expenses. If you operate your own business in your home, you may deduct some of the expenses of maintaining that space. The IRS says you have to use your home for regular and exclusive business to qualify for a deduction. The size of the deduction is based on the percentage of your home dedicated to the business.
Capital Gains
If you sell your home for a profit, you can keep some of the money without a tax obligation if you were using the home as your primary residence for two of the last five years. In fact, you can keep up to $500,000 of the capital gains if filing a joint return. Single or married couples filing separately can keep up to $250,000 in capital gains without a tax obligation.
If you are in doubt about a deduction, it is important to consult with a tax specialist. Each deduction is specific to your situation, and a tax expert can help you navigate the ins and outs of itemizing.
Sources: Rocket Mortgage, NerdWallet, CNBC, Forbes Advisor, Virginia Tax (tax.virginia.gov)