New York City residents are accustomed to paying high income taxes, with a combined city and state tax rate of 10.4 percent for a single person who makes $22,000. Additionally, high real estate prices and rental taxes give life in the Big Apple a high price tag. To counter these costs, homeowners and renters should carefully research all of the tax advantages available to them.
Mortgage Interest
Homeowners arguably have an advantage over renters in many tax-related ways. For example, if you own a co-op or condo in New York and make mortgage payments, you can deduct mortgage interest on the first $750,000 of your loan. This applies whether your tax status is single or married filing jointly. For married homeowners filing separately, each person can deduct interest paid on the first $375,000 of the loan.
Mortgages originating before December 16, 2017, enable homeowners to deduct interest paid on the first $1 million. For taxpayers who are married filing separately, the amount is $500,000. If you have paid mortgage points, these are also eligible for deduction, as are mortgage payments on a second home.
The current $750,000 amount resulted from the Tax Cuts and Jobs Act (TCJA) of 2017. After 2025, the principal limitation amount will revert to $1 million.
Property Tax Reductions
During the COVID-19 pandemic, many people left New York City to work remotely. Many of these people questioned how to change their status to “non-resident” to avoid paying high income taxes in the city. According to tax experts, if moving out of the city constitutes a temporary living situation, workers are still obligated to pay New York City income taxes.
Property taxes and real estate taxes, on the other hand, are allowable itemized deductions. The federal government limits total tax deductions, including local and state taxes, at $10,000 (married filing jointly) and $5,000 (married filing separately). For New York state taxpayers, local and state taxes are not subject to the federal limit.
Home Office Deduction
Home offices became much more common with the shift to remote work. While the Tax Cuts and Jobs Act of 2017 disqualified W2 employees from writing off home offices, self-employed individuals and independent contractors can still take a home office deduction, in addition to writing off numerous work-related expenses.
To qualify for the home office deduction, self-employed workers must use the designated office space in their home exclusively for work. A precise formula that calculates the percentage of the home’s square footage used for office space is used to determine how much you can deduct for your home office space. For example, if you have a 200 square foot office in a 1,000 square foot apartment, you can typically deduct 20 percent of your annual rent and utilities or your mortgage interest and utilities.
What if you live in New Jersey and work in New York? You must file a tax return in the state where you work (New York), and pay taxes on any income earned in that state. However, a tax credit for income earned in New York will apply in New Jersey, which means you will not need to pay income tax on that same income on your New Jersey return.
Home Improvement Tax Credits
If you take out a home equity loan and use the money to pay for home renovations, you might be able to deduct the loan’s interest. To qualify for this deduction, you must use the money to “buy, build, or substantially improve” the home. This means that superficial improvements like painting a bedroom will not qualify, while new windows might. Installing energy-efficient windows and energy-efficient appliances can often qualify for a credit of 10 percent or more.
Moving Expenses
If you recently relocated to New York, you may be able to write off some of your moving expenses. To receive this deduction, you will need to itemize deductions on your New York State and federal tax returns.
Renter Tax Credits
Recent tax law changes in New York have expanded benefits to renters. Applicants must live in New York the entire taxable year, occupy the same residence for at least six months of the tax year, and make less than $200,000 a year. The credit is also an option for renters with 15.75 percent of their rent deemed as property taxes. Eligible residents can receive up to a $500 credit on their state tax return.
Many states offer a rebate to residents with low incomes who pay rent, and New York is no exception. New York renters with a gross income of less than $18,000 are eligible for a $75 credit if they pay $450 or less in rent. If any of the tenants are over the age of 65, they can receive a credit of up to $375.
Consult a tax professional to ensure you are taking advantage of every deduction and credit available to you. Additionally, keep track of important documents and receipts to be sure you have everything ready when it’s time to file.
Leave a Reply