Taxes are confusing enough as it is—throw in the recent Tax Cuts and Jobs Act overhaul, and it's understandable if you're flummoxed.
But fear not! With all the mayhem and misconceptions flying around this year now that the new tax code has taken effect, we're here to set the record straight by highlighting the top tax myths that might dupe even the financial Einsteins among us.
So whether you want to enter this filing season with clear-eyed confidence or just test what you know, check out this list and ask yourself honestly: How many of these fake tax facts did you believe were true?
Tax myth No. 1: The mortgage interest deduction is gone
On the contrary, if you bought your home before Dec. 15, 2017, you're in luck: You are grandfathered in under the old tax laws and can still deduct all of the interest on loans of up to $1 million, says Tom Wheelwright, certified public accountant and CEO of WealthAbility.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 deductible amount is capped at $750,000.
Tax myth No. 2: Property tax deductions are gone, too
Nope! In the past, most taxpayers could deduct state, city, and property taxes in their entirety. Under the new tax plan, these taxes are still deductible. However, there's a cap of $10,000 per year, says Mario Costanz of 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 for single filers and $24,000 for married couples filing jointly. As such, it may not make sense for as many people to itemize their deductions unless it amounts to more than this high new bar.
Tax myth No. 3: If you work from home, you can deduct a home office
Some people mistakenly think that anyone who fires up a laptop at the kitchen island has a “home office.” But to take a home office deduction, that area must not only be used regularly and exclusively for 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, says Josh 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 deductions that might include, say, business expenses that were 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; if you're paid by W-2, you can kiss this deduction goodbye.
In our next blog coming soon, read about how to take a home office tax deduction.
Tax myth No. 4: You can deduct all of your home renovations
Sorry, DIYers: Home improvements are generally not tax-deductible unless the residence also serves as a rental property. But there are a few exceptions where homeowners can cash in.
The first is if modifications were made for medical purposes that don’t increase your property value, which might include installing railings or support bars, building ramps, widening doorways, lowering cabinets or 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 exceed 7.5% of your adjusted gross income.)
The other time you can deduct renovations is if they were made 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.
Tax myth No. 5: All home equity interest is deductible
Homeowners used to turn to a home 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 interest on these loans was tax-deductible.
Not so anymore: HELOC interest is deductible only if the loan is used for a "substantial home improvement," says professor David Reiss of Brooklyn College.
Also keep in mind that now, your total deductible mortgage and eligible home equity debt must be less than the $750,000 cap.
Tax myth No. 6: You can always deduct your moving expenses
Up until last year, taxpayers could deduct only a portion of moving expenses when they relocated for a new job that's at least 50 miles farther from their former home than their 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.