Unlocking Tax Tips for Homeowners

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Maximize Your Tax Deductions!

Who doesn’t love to save money when possible, or get hard-earned money back at the end of the year, as the case may be at tax time? This article is meant to help homeowners maximize their returns by offering tips worthy of talking through with an accountant or tax attorney. I’m neither an accountant nor equip to give tax advice, but here’s what I have learned . . .

Real estate write offs and tax deductions

Mortgage Interest Paid– Mortgage interest is deductible on first homes, second homes and even equity lines of credit (if and only if that equity line was indeed used to improve the home). $1 million loan limit applies plus $100 thousand limit for home equity debt).

For new homeowners, the mortgage interest tax break will be larger, since the ratio of interest to principal paid is heavier in the early years of a loan. See below.

Example scenario:

$112,000 Loan at 4.25% interest
Principal and interest payment: $550
Around $50 per month more goes toward principal in year 5 than in year 1 (that’s nearly 10% in this example).
$1,700 in principal was paid the first year and $2300 will be paid in the fifth year.

 

Taxes –Local and state taxes can be deducted on our Federal Taxes. If these are paid through escrow, keep in mind it’s only the actual disbursement that is deductible (not the amount pulled into your escrow account).

Home office deduction – This applies only to the square footage that is used specifically and only for business or business-related storage. Your home office can be your only office and cannot be combined with another office deduction outside of the home. My accountant has advised diligence in these details, as it’s an area the IRS could be inclined to watch more closely.

Selling costs – If you sold a home in the 2014, the selling costs can be deducted from the gain from sale.  Examples include repairs, title insurance, advertising expenses, real estate broker’s commissions, and inspection fees. Repairs need to have been made within 90 days of the sale and clearly for the intent of marketing the property.

Capital gains taxand the two out of five rule. If your home is your primary residence for two of the last five years, up to $500,000 in profit from the sale of a home may be tax-free (if married/filing jointly). A new purchase is NOT needed to claim this tax benefit! You can also claim certain repairs to reduce your capital gains on the sale, if  they were made within 90 days of the sale and clearly made for the intent of marketing the property.

 

Real Estate Caital Gains Tax Chart

Homeownership has tax advantages. Particularly if you’re selling a home you’ve lived in for 2 of the last five years. The next best scenario is to hold it for at least one year for long-term capital gains taxes.

Points – If you pay points on a loan, these are deductible as the IRS sees them as “prepaid mortgage interest.”

PMI (Private Mortgage Insurance) is deductible.Moving Costs – If you had to find a new home because of a new job that is located more than 50 miles away from your old home, you may be able to deduct your reasonable moving expenses.

Casualty Losses – If losses are large enough (more than 10% of your income), the portion not covered by insurance could be a deduction. Documentation in the form of photos, videos or receipts can be key in times of loss, both for insurance and tax purposes.

Documentation reminder at tax time – Smart phones and tablets make it easier than ever to document the contents or condition of your home. This can help in times of loss.

The benefits of homeownership carry through to tax season. So do the benefits of having a good accountant on your side, who reminds you to track all of these deductions.  Hopefully, a good realtor also is a part of your household’s team and hopefully I have been, or will be that resource for you.

If you know anyone who is ready to sell their home, I would much rather work for them, than work on my taxes, so please, have them give me a call!

Sincerely,

Shana Moore, Your Local Boise Real Estate Professional and source of real estate market trends in Boise Idaho

 

 

Shana Foster Moore

Your Boise real estate resource