The taxation landscape of the United States has changed in recent years, and not necessarily in favor of homeowners. President Donald Trump had tax reform in mind when he took office in 2017. Although he had the full support of a Republican majority in Congress, he was only able to advance some of his lofty proposals in this regard. In 2019, many owners of downtown San Diego condos are not in better taxation shape than they were during previous administrations, and Trump’s proposal to simplify annual filings so they can fit onto a postcard didn’t get very far. With this in mind, here are five tips for condo owners filing their taxes this year.
1. Retain a Tax Preparation Professional
Electronic filing of tax returns has increased the number of self-preparation options considerably, but they’re not ideal for all American taxpayers. If you’re in a position to file a 1040EZ, you should by all means do it on your own, but this doesn’t apply to condo owners who carry mortgages or are self-employed professionals. As a general rule, individuals who live in households that earn at least $500,000 in annual adjusted gross income should think about retaining the services of tax accountants or preparation agents.
2. Deduct Mortgage Interest
The Tax Cuts and Jobs Act of 2017 brought about a major change. Essentially, mortgage interest paid can only be deducted up to $750,000 in mortgage debt. This threshold used to go up to a million dollars. Quite a few penthouse owners in San Diego took out jumbo loans and other non-conventional mortgages in recent years, and they were lucky in the sense that Congress compromised by not reducing the deduction amount to $500,000, as originally planned.
3. Consider How Much Interest Can Be Deducted on a Second Home
San Diego condo owners who purchased units as second homes should keep in mind that the aforementioned $750,000 deduction on mortgage interest extends to the total amount of debt carried across all properties, but there’s a grandfather clause: mortgages that were signed or refinanced before the end of 2017 can still take advantage of the old interest deduction provision of up to a million dollars.
4. Deduct Association Fees if Possible
Since condos are considered to be personal expenses, homeowners association fees cannot be deducted unless the property is being utilized for business purposes. Condo owners who are self-employed professionals or operate a small business from home may be able to deduct a portion of the fees they pay to the homeowners association. A website developer who lives in a small loft may be able to deduct 50 percent of HOA fees if the only bedroom in the unit is being used as a home office.
5. Learn the Taxation Requirements for Condo Associations
Condo owners who are board members of their HOAs must keep in mind they should not only follow corporate rules but also check whether they should file a Form 1120 or 1120-H. Newly formed HOAs should retain a CPA to help them figure out how to file their business tax returns in accordance with Section 528 of the Internal Revenue Code.
Just as you should consult a tax professional for advice, make sure to seek the help of experienced professionals when you’re looking to buy or sell San Diego real estate. Downtown San Diego, for example, may have unlisted hidden gems that only realtors know about. For real estate agents with the highest level of expertise and professionalism, look no further than the team at 92101 Urban Living. Call one of our friendly agents today at 619-649-0368.