Commonly overlooked home tax deductions
Many tax breaks accompany homeownership, and noting each can add thousands of dollars to an IRS tax refund. Consulting with a local tax preparer can help you take advantage of the wide variety of tax breaks available. Below are some commonly overlooked home tax deductions:
• Mortgage Interest. The amount of mortgage interest paid on a principal residence or second home is deductible and generally reported on Form 1098. Taxpayers can also deduct all the points paid to purchase the residence, even if the seller has paid some. If certain requirements are met, the points may be deducted in full in the year paid. Otherwise, they may be deducted over the life of the mortgage. Seller-paid points that taxpayers claim as an itemized deduction reduce the cost basis of the home.
• Buying a Home. Most of the expenses incurred when buying a home are not deductible. However, there are certain closing costs added to the basis of a residence. Keeping track of the basis is important because, when selling, it’s needed to calculate any gain or loss.
• Property Taxes. Taxpayers may deduct real estate property taxes in the year paid, reported on Form 1098, the annual statement from the financial institution holding the mortgage. Taxpayers may also be able to deduct some of the taxes paid during closing. The taxes must be the responsibility of, and paid by, the taxpayer.
• Energy Credits. Taxpayers get energy credits available for making energy efficient changes to a home. For 2011, the credit is limited to 10 percent of the cost of improvements, up to a lifetime total of $500. The credit will be further limited for each category of Improvement.
• Home Improvements. Home improvements are not generally deductible on a tax return. However, the cost of improvements is added to the basis of the home and helps keep any gain, at time of sale, below the $250,000 ($500,000 if married filing jointly) exclusion amount.
There are also tax breaks for owners facing a foreclosure or short sale. Foreclosures and short sales are treated as both a home sale and a canceled debt. When the house is a taxpayer’s primary residence, and they have lived in and owned the home for two of the last five years, any gain up to $500,000 on the disposition is tax-exempt. In addition, the canceled debt (mortgage still owed) is excluded from taxable income for 2011, as long as it is less than $2 million and is for the taxpayer’s principal residence. If you have any further questions, feel free to comment below or fill out the contact form on the About Us page.
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Treeline Realty Corp.
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Posted on April 5, 2012, in Real Estate and tagged Buy a Home, Energy Credit, Home Improvements, Homeownership, IRS, Kristen Pell, Mortgage Interest, Property Taxes, Real Estate Biz, SWFL Real Estate, Tax Breaks. Bookmark the permalink. Leave a comment.