While economists and investors can debate whether buying a home is still part of the American dream, its undeniable that the tax code remains highly favorable to people who own instead of rent.
Whether you were a first-time buyer, a long-time homeowner who refinanced or a seller, there are a host of important deductions available, www.irs.gov/pub/irs-pdf/p530.pdf.
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 can push you over the top and result in a much bigger return.
The downside is no more simple tax returns, since youll have to itemize. But the money youll get back makes it all worthwhile.
Here are seven important tax tips for homeowners to ease the process:
Mortgage interest is your best friend: Taxpayers collectively get about $100 billion annually in mortgage interest breaks. If you just bought a home or refinanced in the last few years, the savings are even more significant, since more than half your monthly payment goes toward interest.
For more information: Tax Publication 530, www.irs.gov/pub/irs-pdf/p530.pdf; or home mortgage interest deduction, www.irs.gov/pub/irs-pdf/p936.pdf.
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: www.irs.gov/uac/Recent-Development-2013-01-16-2012-Form-1098. Thats a huge boon to lower-income homeowners who often cant 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.
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, www.irs.gov/pub/irs-pdf/f5695.pdf, can provide tax relief, including new solar panels or certain hot water heaters. There are also deductions that can be made 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 new 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 profit when you sell a primary residence, but you can deduct any renovations that boosted your homes value from any total profit to get under that threshold. Find those receipts if youre sitting on a big profit and planning to sell.
Claim selling costs: If you sold a home in the last year, costs including title insurance, advertising and real estate broker fees can also be claimed on your return. You can claim certain repairs to reduce your capital gains on the sale, presuming they were made within 90 days of the sale and clearly for the intent of marketing the property. For more information: Tax Publication 523, www.irs.gov/pub/irs-pdf/p523.pdf.
Dont forget moving expenses: If you bought a home in 2012, theres a chance that 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 cant be personal. For more information: Tax Publication 521, www.irs.gov/pub/irs-pdf/p521.pdf.
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