While economists and investors can debate whether buying a home is still
part of the American dream, it’s undeniable that the tax code remains
highly favorable to people who own instead of rent.
Whether you were a first-time buyer, a longtime homeowner who refinanced
or a seller, there are a host of important deductions available.
The easiest way for a family to get more than just the standard
deduction is to claim tax breaks related to a house. Charitable
deductions or a smattering of health care costs might not get you above
the $5,950 deduction for individuals or the $11,900 mark for married
couples. But a few of these big-time breaks in housing can push you over
the top and result in a much bigger refund.
The downside is no more simple tax returns since you’ll have to itemize. But the money you’ll get back makes it worthwhile.
Here are seven important tax tips for homeowners:
• Mortgage interest is your best friend. Taxpayers collectively
get roughly $100 billion annually in mortgage interest breaks. If you
bought a home or refinanced in the last few years, the savings are even
more significant, as more than half your monthly payment goes toward
interest.
• Mortgage insurance is still deductible. There were fears that
the deduction for personal mortgage insurance would fall victim to
fiscal fights in Washington. However, Congress left it in place. That’s a
huge boon to lower-income homeowners who often can’t afford a big down
payment and must pay private mortgage insurance until they have at least
20 percent equity in their homes.
• Taxes are tax deductible. It sounds odd and is
frequently overlooked, but homeowners can deduct their local and state
property taxes on federal tax returns. There also may be special
property tax benefits for lower-income homeowners based on your state or
municipality of residence, so look into further breaks specific to your
community.
• Qualified renovations count. Fixing a leaky faucet or
putting crown molding in the living room is not tax deductible. But
there are a number of items in the tax code that allow for tax breaks
and credits. A host of items covered under residential energy efficiency
can provide tax relief, including new solar panels or certain water
heaters. There are also deductions available for home office
improvements, as well as for medically necessary changes, such as an
entry ramp or a handicap-accessible bathtub.
• Unqualified renovations can count later. While that
addition might not be “necessary,” the expense could be an important
part of reducing your tax burden when you sell. This is especially
noteworthy in hot real estate markets or for homeowners sitting on big
property appreciation. The IRS allows you only $250,000 of tax-free
profit when you sell a primary residence, but you can deduct any
renovations that boosted your home’s value from any total profit to get
under that threshold. Find those receipts if you’re sitting on a big
profit and planning to sell.
• Claim selling costs. If you sold a home in the past
year, costs including title insurance, advertising and real estate
broker fees can be claimed. You can claim certain repairs to reduce
capital gains on the sale, presuming they were made within 90 days of
sale and clearly for the intent of marketing the property.
• Don’t forget moving expenses. If you bought a home in
2012, there’s a chance you did so because of a job-related move. If
this is the case, you may be able to deduct some expenses, provided you
have the receipts. You must have moved 50 miles or more, and the reasons
for your move can’t be personal.
Copyright USA TODAY 2013; Jeff Reeves is the editor of InvestorPlace.com
and the author of The Frugal Investor’s Guide to Finding Great Stocks.
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