Significant tax savings you won’t want to overlook, whether you bought or sold a home this year. (Great article from Trulia, below!)
Tax time is quickly approaching — and you know the old saying: Taxes are one of two things you can’t escape in life. Right now, you may be doing the last-minute scramble to pull together all your receipts, deductions, and income statements.
But in the rush to corral all that paperwork, you may be overlooking significant tax savings that homeownership can bring if you’re planning to itemize your deductions this year. Already done with your taxes? (Aren’t you an overachiever!) These 12 tax-saving tips can help you plan ahead for next year too. Of course, it should go without saying that to maximize (or minimize) your tax return, it’s crucial to spend time with a tax professional — especially someone familiar with local and state taxes that might help you save even more.
- Mortgage interest
The U.S. tax code allows homeowners to deduct the mortgage interest from their tax obligations. For many people, this is a huge deduction since interest payments can be the largest component of your mortgage payment during the early years of owning a home.
- Closing costs
In the tax year that you buy your home, you’re able to claim the points (also called origination fees) on your loan, whether they’re paid by you or by the seller. And because origination fees of 1% or more are common, the savings can be considerable.
- Property tax
Real estate property taxes paid on both your primary residence and vacation home are fully deductible for income tax purposes.
- Home equity lines
In addition to your mortgage interest, you can deduct the interest you pay on a home equity loan (or line of credit). Using home equity lines can allow you to shiftcredit card debts to your home equity loan, pay a lower interest rate than those horrendously exorbitant credit card interest rates, and get a deduction on the interest as well.
This one’s tricky, but it can lead to big savings. If you paid points when refinancing your mortgage, that amount is tax deductible. But remember, you have to spread that cost out over the term of the loan — and take only a credit for the adjusted amount each year.
- Home sweet secondhome
You can also claim a mortgage interest deduction on a second home. Don’t forget to follow this guideline: You can write off only the interest of the total mortgage debt of both your first and second homes up to $1.1 million. Property taxes on a second home are also deductible.
- Short-term rental
If you rent out your home for fewer than 14 days, that income is all yours and not taxable. And even if you go for the big bucks — renting for $5,000 or $10,000 a week — it still stays in your pocket (and the expenses of renting aren’t deductible either).
But if those paying guests want to stay past 14 days or you rent for more than 14 days total during the year, all that rental income is now taxable. The rules here can be tricky, depending on whether you use the home as a primary or vacation residence, so be sure to consult a tax pro for details.
- Capital gains
If you buy a home as your primary residence to live in for more than two years, then you will qualify. When you sell, you can keep profits up to $250,000 if you’re single, $500,000 if you’re married, and not owe any capital gains taxes.
It may sound obvious that your house could be worth more now than when you purchased it, but if you purchased your home any time prior to 2003, chances are, it has appreciated in value, and this tax benefit will come in very handy. The IRS has a convenient (if somewhat technical) guide to taxes when selling your home on its website.
- Unexpected move
If you sell your home after two years or fewer but have to move more than 50 miles away because of work relocation, health reasons, or certain unforeseen circumstances, you can prorate the taxes on your profit. That means you can keep 25%, 50%, or even 75% of your profit — tax-free — depending on how long you have owned your house, as long as it has been your primary residence.
- Health-related upgrades
You can deduct the cost of home improvements required for medical care for you, your spouse, or dependents.
For example, these are some items that qualify: adding entrance ramps, installing railings, adjusting the height of electrical fixtures to accommodate wheelchairs, and sometimes even adding a Jacuzzi tub (if it’s recommend by a doctor).
- Home office
Do you have a room or a specific area of your home that is designated exclusively for your home office? Does it qualify as your primary place of business or serve as the location where you see patient or clients?
In the past, this deduction was cumbersome to calculate. But under the new tax rules, you simply deduct $5 per square foot of designated home office space — that’s up to 300 square feet. Do the math, and you’ll find the rules will allow you to deduct up to $1,500.
- Going green
Energy-efficient improvements can help save you money in two ways: not only are you knocking down your utility bills, but also Uncle Sam gives you a thumbs-up in the form of a tax deduction.
If you make any significant improvements to your home that contribute to higher energy efficiency, like installing double-paned windows, attic insulation, a new roof, or new exterior doors, you can deduct up to 10% of the cost (up to a maximum of $500). Upgrade to any energy-efficient equipment, and you get a credit of 30% of the cost.
(Think big-ticket items like solar panels, geothermal heat pumps, solar water heaters, and wind-energy systems.) Be sure to check locally to see if you can get some additional state tax breaks as well.
- View full article from Trulia here: http://www.trulia.com/blog/deductions-to-help-shrink-your-tax-bill/?ecampaign=con_bimon_mortgagenewsletter_bk&eurl=http%3A%2Fwww.trulia.com%2Fblog%2Fdeductions-to-help-shrink-your-tax-bill%2F#sthash.bIHJcAZv.dpuf