It is tax time, should we take a standard deduction or itemize? Normally, we would have our taxes filed by now, but this year we have an extension. But I am not thinking about taxes, I am thinking about summer, which I am going to tie into taxes on today’s blog.
We typically rent a place up north each summer for anywhere from a few days to a week. I am a huge fan of using VRBO or Air BNB to rent rather than buy. For me, it is about the upkeep. I do not want to be responsible for taking care of two homes.
When completing your taxes, you can choose to either take the standard deduction or itemize deductions. For years, itemizing meant being able to deduct all kinds of things, like your mortgage interest and real estate taxes, charitable contributions, etc. When people say, “it’s a tax deduction,” that is usually what they mean. And, although there are rules you have to follow around this, you could deduct both mortgage interest and taxes on at least two properties, INCLUDING, a camper or a boat, if they have bathrooms (because they did qualify as a second home).
All of that changed a couple of years ago, though, when the Tax Cuts and Jobs Act of 2018 passed. While it lowered tax bracket rates and provided for other deductions, it took away several of the typical deductions AND did two main things for people’s ability to either take the standard deduction or itemize:
- Raised the standard deduction to $12,550 per single person (in 2021) and $25,100 (in 2021) per married couple filing jointly. Now, as a married person, it is really hard to overcome that limit. To warrant taking the itemized deduction, you need enough mortgage interest, taxes, charitable donations, etc. to overcome the $24k, especially because the other thing the Tax Cuts and Jobs Act of 2018 did was:
- Limit the amount of state taxes that you can deduct to $10k. This includes all state and local withholdings and property taxes. So, while before, you could deduct all of that with no limit, now if you are a high earner, your withholding might be more than that without any property taxes combined.
Note that there is an exception if you rent out your second home / property. If it serves as a rental when you are not using it, you can deduct its property taxes because they are deducted on a different schedule.
*Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Stephens Consulting, LLC, doing business as Stephens Wealth Management Group (SWMG), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Stephens Consulting. Please remember that if you are a SWMG client, it remains your responsibility to advise us, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.
SWMG is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of SWMG’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Links are being provided for information purposes only. SWMG is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. SWMG is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Important Disclosure.
Please Note: Stephens Wealth Management Group does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to SWMG’s website or newsletter or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.