I am reposting some timely information from Zillow on ways home owners can take advantage of tax breaks. Of course this advice is not meant to replace tax advice from a tax professional.
Of the Eight Tax breaks three have to do with the transaction costs incurred at the time of sale or purchase, namely:
- mortgage interest paid at settlement
- points
- selling costs
The others are:
- property taxes
- home office deductions
- mortgage insurance premiums
- home improvement loan interest
- construction loan interest
Read the full article here:
Taxes are due April 15, which means
it’s time to start gathering your W2s, 1099s, child care receipts and bank
statements.
But before you sit down with your
accountant, it’s important for you to know that merely owning a home could mean
you qualify for tax breaks. In most cases, you need to itemize your taxes in
order to take advantage of these deductions. Yes, it makes the tax-filing
process seem impenetrable, but the benefits may outweigh the complications.
Here are a few of the tax breaks
you’ll want to investigate:
Mortgage interest paid at settlement
Take a look at your closing
statement; one item that’s generally listed there is home mortgage interest. On
a mortgage of up to $1 million, you can deduct the interest that you pay at
settlement if you itemize your deductions on Schedule A (Form 1040). This
amount should be included in the mortgage interest statement provided by your
lender.
Points
Did you pay points in order to
obtain your home mortgage? These fees are included on the income tax deductions
list and can be deducted as long as they are associated with the purchase of a
home. If you refinanced your home, these points are still deductible, but it
must be done over the life of the mortgage.
Property taxes
As long as they are based on the
assessed value of the real property, you can deduct your state and local
property taxes. However, if your money is being held in escrow for the purpose
of paying property taxes, you cannot claim this deduction until the money is
actually taken out of escrow and paid. If you do this, check your Form 1098 for
the amount you may deduct. Be aware that if you receive a partial refund of
your property tax, the amount of the deduction you can claim will be reduced.
Selling costs
If you sold a home in the past year,
you may be able to reduce your income tax by the amount of your selling costs.
These costs can include things such as repairs, title insurance, advertising
expenses and broker’s fees. The IRS only allows the deduction of repair costs
associated with selling if the repairs were made within 90 days of the sale.
It’s also crucial that the repairs were made with the intent of improving your
home’s marketability. Selling costs are deducted from your gain on the sale.
Home office
If you use a portion of your home
exclusively for the purpose of an office for your small business, you may be
able to claim a deduction on your taxes for costs related to insurance, repairs
and depreciation. You may only claim this deduction if the space within your
home is used exclusively and regularly as either your principal place of
business or a place where you meet and deal with customers or patients. You may
also be able to take advantage of this deduction if a portion of your home
routinely is used for storing items (product samples, inventory, etc.) used in
your business. In tax year 2010 (the most recent
year for which figures are available) nearly 3.4 million taxpayers claimed the
home office deduction.
Mortgage insurance premiums
You may be able to deduct the
premiums paid for private mortgage insurance for your principal residence and
for a non-rental second home.
The deduction begins to phase out
once your adjusted gross income reaches $100,000 ($50,000 for married filing
separately). In general, you can deduct the premiums paid for the current tax
year only. A qualified tax adviser can provide information about rules for
mortgage insurance provided by the Federal Housing Administration, Department
of Veterans Affairs and Rural Housing Service.
Home improvement loan interest
If you’ve taken out a loan to make
improvements on your home, you may be able to deduct the interest on this loan.
Qualifying loans are those taken out to add “capital improvements” to your
home, meaning the improvement must increase your home’s value, adapt it to new
uses or extend its life. New carpeting or painting are not considered capital
improvements, while adding a garage, installing a water heater or building a
deck are all examples of capital improvements.
Construction loan interest
If you take out a construction loan
to build a home, you may qualify to deduct the interest. The IRS only allows a
deduction for mortgage interest if the loan relates to a “qualified” home,
which means it must either be your principal residence or a vacation home that
you will use for personal purposes. You can only use this deduction for the
first 24 months of the loan, even if the actual construction takes longer.
Tax codes can be confusing. You may want to consult the IRS website for
information concerning deductions and credits. Additionally, consider meeting
with a professional to ensure you’re not missing any deductions for which
you’re eligible.
