Still working on your taxes? If you bought or refinanced your home last year, you most likely have several home related tax deductions. Even if you didn’t, there are tax deductions available to homeowners you should know about. Here are some commonly missed categories to review for deductions and credits in order to make sure you are paying the lowest taxes possible.
Itemize, Itemize, Itemize
If you are one of a small percent of homeowners who are just taking the standard deduction, it might be worth a trip to a tax professional to see if you are overlooking deductions that could be claimed by itemizing. Alternatively, tax preparation programs (like TurboTax, H&R Block) are set up to walk you through available tax deductions. Overlooked deductions such as a mortgage payment, points paid to obtain a lower interest rate, your property tax bill, and mortgage insurance, typically, are deductible. The interest paid on your mortgage is a substantial deduction that will continue for a number of years. Other items that can lower your tax bill are “green” home improvements, a Cancellation of Debt (COD) or a deduction for repairs due to casualty or loss.
Energy Tax Credits
If you’ve installed double-pane windows, insulation, low-flow plumbing appliances, tankless water heaters or solar panels last year, many of those improvements are eligible for state, county, and/or city tax credits. If you improved your home using alternative energy sources there are still energy tax credits in place through 2016. The Residential Energy Efficient Property Credit is equal to 30% of the cost of qualified equipment, which includes solar water heaters, solar electric equipment, and wind turbines. There is no cap on the amount of credit for most types of property and the improvements don’t have to be made to your main home (i.e., can be made to rental property.) Mention these improvements to your tax preparer or visit your state, county, and city government websites to research tax advantages for which you may already be eligible.
Short Sale or Defaulted Home Loan
If you were one of the hundreds of thousands of American homeowners who were able to close a short sale or settle a defaulted home loan in 2014, chances are good that you are eligible to take advantage of the Cancellation of Debt (COD) tax break when you file your 2014 return. Normally, defaulted mortgage debt that is forgiven through a foreclosure, short sale, deed in lieu of foreclosure, or settlement via partial payment is actually charged to a taxpayer as income. Under the 2007 Mortgage Debt Forgiveness Relief Act, the IRS has temporarily exempted COD from being taxed as income, to avoid penalizing homeowners for agreeing to a settlement and to ease the homeowner’s burden of an upside-down home mortgage. Casualty-loss deduction Last year’s unpredictable weather affected many people causing damage to their homes. If your home was affected by one of the weather related disasters and you made repairs following a fire, hurricane, tornado, or other disaster, your expenses may be deductible under the casualty/loss rules. The rules can be complicated, but generally you can deduct the cost of a repair to return your property to the state it was in before the disaster.
The More You Know
According to the American Institute for Economics Research, only about 6 of every 10 homeowners itemize deductions on their tax return. A homeowner must itemize in order to qualify for tax breaks such as mortgage interest and property tax deductions. Taking advantage of the tax benefits of homeownership is the first step in using your home to build your personal wealth and receiving larger tax refunds. This article is provided to you by Advantage Home Plus, your employee homeownership program. Everyone’s tax deductions can be a little different. Advantage Home Plus is not a tax expert. To learn more about tax deductions that apply to your specific situation, please contact a tax preparer. If you have questions related to buying, selling or refinancing a home and would like to learn how your employee benefits can save you THOUSANDS of dollars, please contact Advantage Home Plus at 800-376-4603 or www.advantagehomeplus.com. Educate – Plan – Save The Advantage Way!