Don’t rouse the IRS or pay more taxes than necessary —
know the score on each home tax deduction and credit.
As you calculate your tax returns, consider each
home tax deduction and credit you are — and are not — entitled to. Running afoul
of any of these 9 home-related tax mistakes — which tax pros say are especially
common — can cost you money or draw the IRS to your doorstep.
Sin #1: Deducting the wrong year for property taxes
If your lender escrows funds to pay your property taxes, don’t just deduct the amount escrowed, says Bob Meighan, CPA and vice president at TurboTax in San Diego. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. Your lender will adjust the amount every year or so to realign the two.
For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200. Your lender will send you an official statement listing the actual taxes paid. Use that. Don’t just add up 12 months of escrow property tax payments.
Sin #3: Deducting points paid to refinance
If the IRS comes a-knockin’, don’t be scrambling to compile your records. Many people forget to track home office and home maintenance and repair expenses, says Meighan. File away documents as you go. For example, save each manufacturer’s certification statement for energy tax credits and lender or government statements to confirm property taxes paid.
Sin #7: Forgetting to keep track of capital gains
Sin #9: Claiming too much for the mortgage interest tax deduction
You take a tax
deduction for property taxes in the year you (or the holder of your escrow
account) actually paid them. Some taxing authorities work a year behind — that
is, you’re not billed for 2013 property taxes until 2014. But that’s irrelevant
to the feds.
Enter on your federal forms whatever amount you actually paid in 2013, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.
Sin #2: Confusing escrow amount for actual taxes paidEnter on your federal forms whatever amount you actually paid in 2013, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.
If your lender escrows funds to pay your property taxes, don’t just deduct the amount escrowed, says Bob Meighan, CPA and vice president at TurboTax in San Diego. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. Your lender will adjust the amount every year or so to realign the two.
For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200. Your lender will send you an official statement listing the actual taxes paid. Use that. Don’t just add up 12 months of escrow property tax payments.
Sin #3: Deducting points paid to refinance
Deduct points you paid
your lender to secure
your mortgage in full for the year you bought your home. However, when you
refinance, says Meighan, you must deduct points over the life of your new loan.
If you paid $2,000 in points to refinance into a 15-year mortgage, your tax
deduction is $133 per year.
Sin #4: Misjudging the home
office tax deduction
This deduction may not be
as good as it seems. It’s complicated, often doesn’t amount to much of a
deduction, has to be recaptured if you turn a profit when you sell your home,
and can pique the IRS’s interest in your return. Hampton’s advice: Claim it only
if it’s worth those drawbacks. If so, here’s what to know about what
you can write off.
Sin #5: Failing to repay the first-time home buyer tax
credit
If you used the original
home
buyer tax credit in 2008, you must repay 1/15th of the credit over 15 years.
If you used the tax credit in 2009, 2010, or 2011 and then sold your house or
stopped using it as your primary residence, within 36 months of the purchase
date, you also have to pay back the credit.
The IRS has a tool you can use to help figure out what you
owe.
Sin #6: Failing to track home-related expensesIf the IRS comes a-knockin’, don’t be scrambling to compile your records. Many people forget to track home office and home maintenance and repair expenses, says Meighan. File away documents as you go. For example, save each manufacturer’s certification statement for energy tax credits and lender or government statements to confirm property taxes paid.
Sin #7: Forgetting to keep track of capital gains
If you sold your main
home last year, don’t forget to pay capital
gains taxes on any profit. You can exclude $250,000 (or $500,000 if you’re a
married couple) of any profits from taxes. So if you bought a home for $100,000
and sold it for $400,000, your capital gains are $300,000. If you’re single, you
owe taxes on $50,000 of gains. However, there are minimum time limits for
holding property to take advantage of the exclusions, and other details. Consult
IRS Publication 523.
Sin #8: Filing incorrectly for energy tax credits
If you made any eligible improvements in 2012 — or will in 2013 — such
as installing energy-efficient windows and doors, you may be able to take a 10%
tax credit (up to $500). Fill out Form 5695.
Part II of the form, which covers systems eligible for a larger tax credit
through 2016, such as geothermal heat pumps, can be incredibly complex and
involves crosschecking with half a dozen other IRS forms. Read the instructions
carefully.Sin #9: Claiming too much for the mortgage interest tax deduction
You can deduct
mortgage interest only up to $1 million of mortgage debt, says Meighan. If
you have $1.2 million in mortgage debt, for example, deduct only the mortgage
interest attributable to the first $1 million.
This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice
This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice
Read more: http://www.houselogic.com/home-advice/taxes-incentives/common-tax-mistakes/#ixzz2H9b2NixW