I found
this article by attorney and award winning writer G.M Filisko in Houselogic.com
and decided to publish it in my blog for all current and future homeowners. G.M
Filisko is a frequent contributor to publications including Bankrate, REALTOR
Magazine, and the American Bar Association Journal, she specializes in real
estate, personal finance,and legal topics.
Mr.
Filisko will teach us how to avoid 9 common mistakes that Home Owners can make
when filing our taxes.
This
article was original published in Jan. 2011.
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 is a
copy of the article written by Attorney Filisko:
“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
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 paid
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 or 2010 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 expenses
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
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 your cost basis for your
home is $100,000 (what you paid for it plus any improvements) and you 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; with some systems your cap is even lower than $500). But keep in
mind, it’s a lifetime credit. If you claimed the credit in any recent years,
you’re done. Fill out Form 5695.
The first
part of the form, which covers systems eligible for a larger tax credit through
2016, such as geothermal heat pumps, can be 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. *Source:
HouseLogic.com
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