You’ve seen the commercials asking, “Did you…?” Did you get married? Did you start a new job? Did you have medical expenses? That’s right, it’s tax season! Accordingly, tax preparation companies are inundating the airwaves with just enough information to make you think, and then choose them to represent you. While it is recommended that you have a qualified person or company prepare your tax return, Carod properties also advises you to arm yourself with as much information as possible. Be prepared for your tax preparation!
Another question that might be posed in those commercials is “Did you buy a home?” or “Do you own a home?” If your answer is yes to either, or even both of those questions, then that adds another level of complexity to what information your tax preparer will need, questions you may be asked, and what you can expect at tax time. Here are few things to think about, ask about, and/or be prepared for to facilitate your tax filing experience:
- Your monthly house payment offers several opportunities for income tax savings. These include mortgage interest, property taxes, and mortgage insurance.
- Know your credits: Energy, Home Improvements, First-time Homebuyer, Home-buying Expenses.
- Did you pay points to get a better rate on any of your various home loans? They offer a tax break, too. The IRS lets you deduct points in the year you paid them if, among other things, the loan is to purchase or build your main home, payment of points is an established business practice in your area and the points were within the usual range.
- The other major deduction in connection with your home is property taxes. A big part of most monthly loan payments is taxes, which go into an escrow account for payment once a year. This amount should be included on the annual statement you get from your lender, along with your loan interest information. These taxes will be an annual deduction as long as you own your home.
- There are benefits to selling, also. When you decide to move up to a bigger home, you'll be able to avoid some taxes on the profit you make. Years ago, to avoid paying tax on the sale of a residence, a homeowner had to use the sale proceeds to buy another house. In 1997, the law was changed so that up to $250,000 in sales gain ($500,000 for married, filing jointly) is tax-free as long as the homeowner owned the property for two years and lived in it for two of the five years before the sale.
The good news is you can deduct many of your home-related expenses. These tax breaks are available for any residence type -- mobile home, single-family residence, town house, condominium or cooperative apartment. The bad news is, to take full tax advantage of your home, your taxes will likely get a little to considerably more complicated. In most cases, homeowners will need to itemize. That means you're not living on "EZ" Street anymore (pun intended); you've moved to the intersection of Form 1040 Boulevard and Schedule A Avenue, where you'll have to detail your tax-deductible expenses. If you do your homework, you can reap the financial rewards and benefits making the extra effort totally worth it. As always, Carod Properties is here to help!
