There are about sixty (60) days until we approach the April 15th tax deadline. Don’t provoke the IRS or pay more taxes than need be — know the facts on home tax deductions and credits.
Deducting the incorrect year for property taxes
You take a tax deduction for property taxes in the year you actually paid them. Some taxing authorities work a year behind — that is, you’re not billed for 2014 property taxes until 2015. Enter the amount you paid in that tax year, and don’t go by the date that is on your tax bill.
Escrow total for actual taxes paid
If your lender escrows funds to pay your property taxes, you won’t deduct the amount escrowed. The 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.
Deducting points paid to refinance
Deducting points you paid your lender to secure your mortgage in full for the year you bought your home. However, when you refinance, you must deduct points over the life of your new loan.
Home office tax deduction
The deduction is complex and has to be evoked if you make a profit when you sell your home. But the good news is, there’s a simplified home office deduction option if you don’t want to claim actual costs.
Failing to keep track of home-related expenses
If the IRS contacts you, don’t scramble to collect your records. Be sure to create a file folder or scan and store all home office and home improvement expense receipts and other home-related records as you go.
Failing to keep track of capital gains
If you sold your home last year, be sure to pay capital gains taxes on your profit. If your home is $300,000 (what you paid, plus any improvements) and you sold it for $500,000, your capital gains are $200,000. Review the IRS Publication 523, which will explain the tax rules that will apply when you sell your home.
Filing incorrectly for energy tax credits
If you made any qualified improvements in 2014, such as installing energy-efficient doors or windows, you may be eligible to take a 10% tax credit (up to $500; with some even lower than $500). Remember, if you’ve taken this credit in recent years, you can’t take the credit ever again.
Claiming too much for the mortgage interest tax deduction
You’re allowed to deduct mortgage interest debt up to $1 million and deduct up to $100,000 in home equity debt.
Disclaimer: The information contained on this website is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant.