After the Easter weekend, Americans stare again at the tax season. It’s a slightly different tax season, however, as the pandemic and the resulting lockdowns have changed the spending patterns for almost every American.
One of the more notable changes, along with increased savings rates and more online shopping, has been renovations. Americans stuck at home with no trips or restaurants to indulge in have converted their homes, built offices, and reinvested in their place of residence. A real estate expert told MPA that these homeowners could suddenly be eligible for significant tax breaks.
Holden Lewis (pictured), home and mortgage expert at NerdWallet, said a certain segment of homeowners who have been renovating are ripe for a number of tax cuts. He noted that homeowners who pay more mortgage interest and property taxes than the standard withholding are likely to receive a number of tax breaks for any renovation project they may have done in the past year. These more leveraged owners, he explained, are a perfect point of contact for Mortgage professionals who, in cooperation with a tax expert, can help you save a lot of taxes and further strengthen your position as advisor in all financial matters.
“The Tax Act of 2017 made many changes. The bottom line is that you can deduct interest for your tax law Home equity Line of credit or home equity if that money is spent on renovations, ”said Lewis. “You can’t take it off if it was on vacation or in the car or tuition fees or the like. What it means is – if you have a mortgage, and then you get a line of home equity to finance home renovations, you can add up the interest paid on both of them and your property taxes and if it is more than the standard deduction then you can pull that off. “
In addition to this core aspect of the tax code. Lewis explained another area of possibility while noting that every borrower should consult a tax professional on the matter. If a homeowner has made “medically necessary improvements” to their property that were a 7.5% excess of their Adjusted Gross Income, the excess can also be adjusted. As baby boomers get older and more families are bringing in older generations to avoid the potential risks associated with retirement homes, these improvements will become a more normal fact of home ownership. While what is “medically necessary” might be up for debate, Lewis believes a number of borrowers might be eligible.
In both situations, Lewis sees a real opportunity for mortgage professionals to show their worth. He noted that these incentives are a particularly good angle for accessing homeowners living in states or neighborhoods with high property taxes. Finding these customers and showing them the tax benefits of a home equity line of credit or a disbursement refinance for renovation can be a big driver for the business. It’s also important to strengthen relationships that can last a lifetime.
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“It’s a way to keep in touch with the customer and really talk about how they manage their debt and what they do with their debt,” said Lewis. “It is not a good idea to leave this customer alone forever. By positioning themselves as a debt counselor, a mortgage professional can use these tax incentives to demonstrate how a homeowner can use their debt to accomplish all of their various goals, be it home renovation or some other goal. ”