Many New Yorkers have questions about their tax deductions this time of year. The most common (as you may have guessed)? How to make a tax bill as teensy as possible — or, better yet, how to get a tax refund? For the best advice on your unique financial situation, you should, of course, consult a tax professional well in advance of the April 18, 2023 filing deadline. That said, we polled a couple of pros for their overarching tax advice on making a big refund possible — legally — including mortgage interest deductions and write-offs for your home office. Come on, let’s get working on a tax refund!
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Can Mortgage Interest Be Deducted in 2023?
We asked Xintian Wang, a CPA and Senior Tax Manager at Dimov Tax Specialists. His response? “If you own a condo or a co-op in NYC with a mortgage, you can deduct mortgage interest on the first $750,000 of the loan with a single or married filing jointly status.”
But when it comes to getting a tax refund, there’s a twist if you are married and filing taxes separately. You can only deduct interest paid on the first $375,000. Did you take out a mortgage before December 16th, 2017? Here’s some good news. You can deduct interest paid on the first $1 million. However, if you are married and filed separately, the number is reduced to $500,000, Wang says. “Mortgage points you paid also qualify for deductions.”
Deductions apply to second homes, too, says Aaron Smyle, MBA, MST, EA, founder of Manhattan-based Smyle and Associates, LLC. The $750,000 worth of principal limitation was introduced by the Tax Cuts and Jobs Act (TCJA) and will revert to $1 million after 2025, Smyle says.
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Can You Get a Tax Refund for Home Office Deductions in 2023?
Unfortunately, W2 employees are no longer able to take a write-off for home offices due to the Tax Cuts and Jobs Act. “If you are self-employed or an independent contractor, you can deduct home office expenses and any expenses that are related to your job,” Wang says.
But getting a tax refund is not as easy as checking a “worked from home” box on your taxes. “If you’re looking to take the deduction, the office portion of your home has to be used exclusively as an office,” Smyle says. The sofa where you eat takeout and watch Netflix won’t cut it. “There’s also a formula for determining the amount to deduct for a home office based on the size of your home. For example, if your home office is 200 sq. ft, and your apartment is 800 sq. ft., your workspace is 25% of your home. Afterward, that percentage is applied to total yearly rent and utilities, or if you own, it’s applied to mortgage interest, maintenance, and utilities.”
If you live in New Jersey and work in New York, you may be worried about having to fork over taxes in both states. You will need to file a New York tax return and pay taxes on income earned in New York. The bright spot? You will get a tax credit for earned income in New York for New Jersey, so you’re not paying state taxes on the same income twice. Phew!
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What’s the Deal With Property Tax Deductions for 2023?
“With the ability to work remotely, a lot of people have been out of the city [in recent years] and want to see what they can do to minimize their tax liability,” Smyle says. “Intent is one of the biggest factors determining residency status and a temporary living situation. It would not absolve one from having to pay income taxes here in the city.” Smyle advises being extra careful if you’re trying to change your status to “non-resident” for tax purposes. “There are a lot of items that need to be in place to properly, and ethically, make that claim.”
Wang notes that if you pay real estate tax or property tax, you can add that to your itemized deduction for a potential tax refund. But the total tax deductions, including state and local taxes, are capped at $10,000 ($5,000 if married filing separately) on the Federal side. “For New York purposes, the deductions are not subject to the Federal limit,” she says.
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Are Home Improvements Eligible for Tax credits?
Call it the HGTV effect. It’s possible to write off home equity loan interest if you used the loan for renovations on your place — but only if they’re substantial improvements. Sorry, repainting the bathroom doesn’t count. What’s another way to nab a potential tax credit? If you installed energy-efficient upgrades, including qualifying energy-efficient windows, you can likely apply for a credit of 10% or more. But before doing, please consult with a tax professional.
NYC’s Enhanced Real Property Tax Credit for Renters
If you live in a rental, rejoice! “Renters in New York City may claim a tax credit on their state tax returns,” Wang says. “If you lived in the same apartment or house for at least six months, are a full-year NYC resident, and your household income is below $200,000, you are eligible for a credit up to $500. The credit also applies to taxpayers who own properties and pay real estate taxes.”
If you gleaned nothing else from this article, take this advice from Smyle to heart as you prepare for your possible 2023 tax refund: “As we are approaching year-end, you should start to get your financial documents in order. Remember, shoeboxes are for shoes, so get your receipts itemized and organized.” Spoken like a true tax pro.
