Even though taxes are due by April 15, 2021 for most taxpayers, you are able to electronically file your taxes much earlier. The IRS will begin accepting electronic returns starting on Feb. 12, 2021, when all taxpayers should have received their information returns, such as W2 and 1099 forms, for the 2020 fiscal year.

Whether you’re an existing homeowner, recently purchased a home, or closed on a refinance in 2020, the following documents will be needed to prepare your tax return.

Form 1098

The 1098 tax form is the interest statement used by lenders to report the amount of interest paid by borrowers during the calendar year. If you’ve paid more than $600 in interest on your home loan in the past year, you are typically able to deduct that interest from your taxable income. The current deduction limit is $750,000 for a mortgage, meaning that single filers can deduct the full amount and married taxpayers filing separately can deduct $375,000 each. 

You should receive the 1098 form from your bank or mortgage servicer for both your first and secondary loans. If you’ve refinanced or had multiple mortgages throughout the year, you will need to furnish all 1098 forms.

Real Estate Property Tax Records

You may deduct up to $10,000, or $5,000 if you’re married and filing separately, for a combination of your property taxes.

Not all lenders provide documentation on the amount of taxes paid in a given year. To determine the amount of real estate taxes paid in the calendar year, homeowners can use the tax bill received from their municipality.

Be sure to deduct your property taxes within the year that you pay them. The simplicity of that statement is deceiving. Some towns' billing cycles encompass a portion of two different years. Lastly, you can only deduct the pro rata share of the annual real estate taxes for the period of time you owned the home.

Form 8829

As more people work from home and are utilizing home offices, Form 8829 allows you to deduct any relevant expenses. However, just because you work at home doesn’t mean you can write off your utilities. The IRS specifically outlines which expenses are eligible for a home office tax deduction:

• The area you use for work within your home must be your principal place of business.
• You must have a dedicated area that you use exclusively for business, and only expenses generated directly by that area can appear on Form 8829.
• You can only deduct expenses from the portion of your home used exclusively for work. For example, you can’t work in your kitchen and deduct your new refrigerator. 

Speak with your tax provider for further clarification on how Form 8829 pertains to your individual circumstances.

Recent Purchases, Refinances, and Mortgage Insurance

If you purchased or refinanced your home, we recommend providing a copy of the closing disclosure form (CD) to your tax preparer.

If you put less than 20% down on your home and are paying private mortgage insurance, a premium deduction is available if the following are true: 

• Your mortgage insurance contract was issued after Dec. 31, 2006
• The premium is for a new mortgage
• You itemize your deductions

If you meet the above criteria, your deduction will be dependent on your income in the following ways: 

• Your reduction is reduced by 10% for each $1,000 your adjusted gross income (AGI) is more than $100,000 or $50,000 if married filing separately. 
• Your reduction is eliminated if your AGI is more than $109,000 or $54,500 if married filing separately. 

The official IRS code for deducting mortgage insurance, which also includes PMI premiums, can be seen in Publication 936.

Your mortgage insurance (PMI) should be located on your final mortgage statement for the year.

Forbearance

If you were in forbearance and your lender paid your property taxes, check with your tax professional on if you can still deduct your taxes. 

As always, consult with a tax professional if you have any questions regarding your individual tax return. Remaining prepared and informed is the best way to ensure you’ll have the proper documentation when it comes to filing your 2020 tax return.