It is tax time. 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.
Any opinions are those of Jill Carr and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.