you calculate your tax returns, consider each home tax deduction and credit you
are, and are not, entitled to. Running afoul of any of these 9 home-related tax
mistakes, which tax pros say are especially common, can cost you money or draw
the IRS to your doorstep.
wrong year for property taxes:You
take a tax deduction for property taxes in the year you
(or the holder of your escrow account) actually paid them. Some taxing authorities
work a year behind, that is, you’re not billed for 2013 property taxes until
2014. Enter on your federal forms whatever amount you actually paid in 2013, no
matter what the date is on your tax bill. Confusing escrow
amount for actual taxes paid:
your lender escrows funds to pay your property taxes, don’t just deduct the
amount escrowed. The regular amount you pay into your escrow account each month
to cover property taxes is probably a little more or a little less than your
property tax bill. Your lender will adjust the amount every year or so to
realign the two. For example, your tax bill might be $1,200, but your lender
may have collected $1,100 or $1,300 in escrow over the year. Deduct only
$1,200, your lender will send you an official statement listing the actual
taxes paid. Don’t just add up 12 months of escrow property tax payments.
paid to refinance:
points you paid your lender to secure your mortgage in full for the year you
bought your home. However, when you refinance, you must deduct points over the
life of your new loan. If you paid $2,000 in points to refinance into a 15-year
mortgage, your tax deduction is $133 per year.
home office tax deduction:The
deduction is complicated, often doesn’t amount to much of a deduction, has to
be recaptured if you turn a profit when you sell your home, and can pique the
IRS’s interest in your return. But there’s good news, there’s a new simplified home office deduction option if you
don’t want to claim actual costs. If you’re eligible, you can instead claim $5
per sq. ft. up to 300 feet, or $1,500.Failing to repay
the first-time home buyer tax credit:If
you used the original home buyer tax credit in 2008, you must repay
1/15th of the credit over 15 years. If you used the tax credit in 2009 or 2010
and then sold your house or stopped using it as your primary residence, within
36 months of the purchase date, you also have to pay back the credit. The IRS
has a tool you can use to
help figure out what you owe.Failing to track
the IRS comes a-knockin’, don’t be scrambling to compile your records. Many
people forget to track home office and home improvement expenses, says Meighan.
File away documents as you go. For example, save each manufacturer’s
certification statement for energy tax credits and lender or government statements
to confirm property taxes paid.
keep track of capital gains:If
you sold your main home last year, don’t forget to pay capital gains taxes on any profit.
You can exclude $250,000 (or $500,000 if you’re a married couple) of any
profits from taxes. So if your cost basis for your home is $100,000 (what you
paid for it plus any improvements) and you sold it for $400,000, your capital
gains are $300,000. If you’re single, you owe taxes on $50,000 of gains.
However, there are minimum time limits for holding property to take advantage
of the exclusions, and other details. Consult IRS Publication 523.Filing
incorrectly for energy tax credits:If
you made any eligible improvements in 2013, such as installing energy-efficient
windows and doors, you may be able to take a 10% tax credit (up to $500; with
some systems your cap is even lower than $500). But keep in mind, it’s a
lifetime credit. If you claimed the credit in any recent years, you’re done.
Fill out Form 5695. The first part
of the form, which covers systems eligible for a larger tax credit through 2016,
such as geothermal heat pumps, can be complex and involves crosschecking with
half a dozen other IRS forms. Read the instructions carefully.Claiming too
much for the mortgage interest tax deduction:Taxpayers
are allowed to deduct mortgage interest on home
acquisition debt up to $1 million, plus they can also deduct up to $100,000 in
home equity debt.
This article provides
general information about tax laws and consequences, but shouldn’t be relied
upon as tax or legal advice applicable to particular transactions or
circumstances. Consult a tax professional for such advice.
Author:Brandi Chapman Phone: 281-682-6069 Dated: February 10th 2014 Views: 1,940 About Brandi: Whether you are buying or selling, Brandi understands the process can often be challenging and compl...
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