2020 was a year no one will soon forget – as it served as a stark reminder of how many things happen that we cannot control. For most of us, it put into perspective how important some things are compared to others. Including, but certainly not limited to, our finances. Throw in that we're also in the middle of tax season, and it's the perfect time to take a fresh look at what you need to know about potential changes for your taxes this year.
Below, we'll cover some of the more significant changes that may affect you, and what some changes may mean for your mortgage tax deductions.
The unofficial best day to be an accountant has always been April 15, the IRS deadline to file your taxes. But this year, the IRS has moved it back to May 17, 2021. Between some lingering uncertainties of the pandemic and the recent round of stimulus checks, this extended deadline will give filers, preparers, and the IRS the necessary time to process returns and implement new tax provisions from the most recent COVID-19 relief bill.
While the IRS extended the federal filing deadline, that doesn't apply to state filing deadlines. It's hard to predict which states may extend the deadline, so it's still important to file your taxes as soon as possible to avoid any potential late fees.
It's always possible to file for an extension with the IRS to give you until October 15, 2021, to complete your 2020 taxes. To do so, you will need to submit your request for an extension to the IRS by May 17, 2021. However, even with an extension, you'll have to pay a late fee on any federal taxes owed if you don't file and pay by the May 17 deadline.
Refunds are certainly the most exciting element of filing taxes. And the quickest way to receive any potential refund is to file your taxes electronically and select direct deposit. Typically, refunds are issued within 21 days of your return being processed and accepted by the IRS. However, the IRS is working doubly at processing returns and issuing stimulus checks because of the recent relief package. So, if you're filing on paper and via mail, you can expect a delay in your refund. You can always check your refund status with the IRS tool "Where's My Refund?".(Opens in a new window)
Stimulus and Unemployment Payments
If you received stimulus checks over the last year, there's good news: Those are not considered taxable income. Instead, your stimulus money is treated as a refundable tax credit for 2020. In other words, your stimulus check is like an advance on money you would have already received as part of your tax refund in 2021.
As for unemployment payments, households with income falling below $150,000 in the last year will have their first $10,200 in unemployment benefits exempted from federal income tax, thanks to the latest COVID-19 relief package.
The Tax Cuts and Jobs Act of 2017 did away with many itemized deductions, but there are still some available when filing your 2020 taxes.
State and local taxes
While nearly all homeowners qualify for the mortgage interest tax deduction, you can only claim it if you itemize your deductions on your federal income tax return.
Mortgage Interest Deduction
Suppose you purchased a home before December 16, 2017. In that case, you can deduct the mortgage interest paid on the first $1 million in mortgage debt. For mortgages taken out before that date, you can deduct the interest on the first $750,000. Also, married taxpayers filing separately can deduct up to $375,000 each.
Whether you deduct your mortgage interest will depend on your total itemized deductions more than the standard deduction based on your filing status. Those standard deductions for the 2020 tax year are:
$12,400 for single filing status
$24,800 for married, filing jointly
$12,400 for married, filing separately
$18,650 for heads of households
To obtain your mortgage interest information, you'll need a Form 1098 from your mortgage lender or servicer. Read more(Opens in a new window) for up-to-date IRS information and essential reminders on filing for home mortgage interest deduction, or contact your loan originator(Opens in a new window) with any questions.
The last year has been stressful, but that doesn't mean that filing your taxes has to be. Our team of trusted partners at Guardian Mortgage, and financial professionals at Sunflower Bank, are here to assist you and answer any questions you might have.