Expert explains what some homeowners are entitled to if they worked on the house this year
With the Easter weekend gone, Americans are once again staring down the barrel of tax season. It’s a somewhat different tax season, though, as the pandemic and its resultant lockdowns have changed spending patterns for almost every American.
One of the more notable changes, along with increased savings rates and more online purchases, has been in renovations. Americans stuck at home with no trips or restaurants to splurge on have remodeled their homes, built offices, and reinvested in where they live. One housing expert told MPA that in doing so, those homeowners could be suddenly eligible for some significant tax breaks.
Holden Lewis (pictured), home and mortgage expert at NerdWallet, explained that a certain segment of homeowners who renovated are ripe for a set of tax cuts. He noted that homeowners who pay more in mortgage interest and property taxes than the standard deduction are likely eligible for a range of tax breaks on any renovation project they might have undertaken in the past year. Those more heavily leveraged owners, he explained, are a perfect point of contact for mortgage professionals who, in partnership with a tax expert, can help them save big on taxes and further strengthen their position as an advisor in all things financial.
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“There are a lot of changes made in the 2017 tax law and the bottom line is, you can deduct interest on your home equity line of credit, or home equity loan, if that money is spent on renovations,” Lewis said. “You can’t deduct it if it’s been on vacations or cars, or college tuition or something like that. What it means is - if you have a mortgage and then you get a home equity line of credit to fund renovations, you can add the interest paid on both of those together, and your property taxes, and if they amount to more than the standard deduction, then you can deduct that.”
In addition to that core aspect of the tax code. Lewis explained another area of opportunity, while noting that any borrower should consult with a tax professional on it. If a homeowner made “medically necessary improvements” on their property that amounted to an excess of 7.5% of their adjusted gross income, then the excess can also be adjusted. As baby boomers age and more families bring in older generations to avoid the potential risks that come with retirement homes, these improvements are becoming a more normal fact of homeownership. While what’s “medically necessary” might be up for debate, Lewis believes a range of borrowers might be eligible.
In both of these situations, Lewis sees a real opportunity for mortgage professionals to show their value. He noted that these incentives are an especially good angle for accessing homeowners living in states or neighborhoods with high property taxes. Finding those customers and showing them the tax benefits of a home equity line of credit or cash out refinance to renovate can be a huge driver for business. It’s crucial, too, to strengthening relationships that can last a lifetime.
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“It’s a way of staying in touch with the customer, and really talking about how they manage their debt and what are they doing with their debt,” Lewis said. “It’s not a good idea to just kind of leave that customer alone forever. If a mortgage pro positions themselves as a debt advisor, they can use these tax incentives to show how a homeowner can use their debt to further all their various aims, whether that’s renovating the house or some other goal.”