Taxesareconfusing enoughas it is—throw in the recent Tax Cuts and Jobs Act overhaul, and it’s understandable if you’reflummoxed.
But fear not! With all the mayhem and misconceptions flying around this year now that the new tax code has taken effect,we’rehere to set the record straight byhighlightingthe top tax myths that might dupe even the financial Einsteins among us.
So whether you want toenter this filing season with clear-eyed confidence or just test what you know, check out this list andask yourself honestly: How many of these fake tax factsdid you believe were true?
Tax myth No. 1: The mortgage interest deduction is gone
On the contrary, ifyou bought yourhome before Dec. 15, 2017, you’re in luck: You are grandfathered in under the old tax laws and can still deduct all of the intereston loans of up to$1 million,saysTom Wheelwright, certified public accountant and CEO ofWealthAbility.com.
And for those who bought a home after Dec. 15, 2017, or plan to in the future,it’s not as bleak as many think. Mortgage interest is still deductible; it’s just that the deductibleamount is capped at$750,000.
Taxmyth No. 2: Property tax deductions are gone, too
Nope! In the past, most taxpayers could deduct state, city, andproperty taxes in their entirety. Under the new tax plan,these taxesarestilldeductible. However, there’s a cap of$10,000 per year, saysMario Costanzof Happy Tax.
In other words, property tax and mortgage interest deductions are far from gone—but one thing to consider is that the standard deduction nearly doubled—to$12,000 forsingle filers and $24,000 for married couples filing jointly. As such,it may not make sense for as many people to itemize their deductions unlessit amounts to more than thishighnewbar.
Here’s more info on how to tell whether you should take theitemized or standard deduction.
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Watch: 5 Pet-Related Tax Deductions We Bet You Didn’t Know Of
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Taxmyth No. 3: If you work from home, you candeduct a home office
Some people mistakenly think that anyone who fires up alaptopat the kitchen island has a “home office.” But to take ahome office deduction, that area must not only be used regularly andexclusivelyfor business,it also has to be the primary site of the business.
So if you turned a spare room into a dedicated workspace, you can claim it. But if you occasionally work in the living room, that’s not deductible, saysJosh Zimmelman, owner of Westwood Tax & Consulting, a New York–based accounting firm with offices in Manhattan and Long Island.
Plus, things just got even stricter under the new tax codes.
In the past, office employees who occasionally worked from home could claim eligible home office deductionsthatmight include, say, business expenses thatwere not reimbursed by your employer.But now, only self-employed people can deduct their home office in any way.
So if you own your own business, you’re fine; ifyou’re paid by W-2,you can kiss this deduction goodbye.
Here’s more abouthow to take a home office tax deduction.
Taxmyth No. 4: You can deduct all of your home renovations
Sorry,DIYers: Home improvements are generallynottax-deductible unless the residence also serves as a rental property. But there are a few exceptions where homeowners can cash in.
The first is ifmodificationswere made for medical purposesthat don’t increase your property value, which might include installing railings or support bars, building ramps, widening doorways, loweringcabinetsor electrical fixtures, and adding stair lifts. (You’ll need a letter from your doctor to prove the modifications are medically necessary to claim these deductions. Plus, those expenses must exceed7.5% of your adjusted gross income.)
The other time you can deduct renovations is if they weremade in order to sell your home. You can deduct those expenses as selling costs, as long as the home improvements were made within 90 days of closing.
Taxmyth No. 5: All home equity interest is deductible
Homeowners used to turn toahome equity loan or line of credit(HELOC) for cash to make home improvements or pay for more general expenses (e.g., a child’s college tuition or wedding). And in past years,the interestontheseloans was tax-deductible.
Not so anymore: HELOC interest is deductibleonlyif theloan is used for a “substantial home improvement,” saysprofessor DavidReissof Brooklyn College.
Also keep in mind that now, yourtotaldeductible mortgage and eligible home equity debtmust beless than the $750,000 cap.
Taxmyth No. 6: You can always deduct your moving expenses
Up until last year, taxpayers could deductonlya portion ofmoving expenseswhen theyrelocatedfor a new job that’s at least50 miles farther fromtheir former home thantheir old job location.
And per the new tax bill, no moving expenses of any kind are deductible. The only exceptions are for members of the armed forces on active duty.
