What makes Christmas and New Year’s better than friends, family, and savings? How about owning a home? The holiday season is a cheerful time spent with family, but for those of us with families
10 Tax Tips For Homeowners
When it comes to tax kickbacks for homeowners, first-time buyers have it made. Not only can they nail whatever they want to the wall for the first time ever, but they also have some of the most lucrative tax credits available. There are many reasons to go from renter to homebuyer, tax breaks being just one of them. No matter who you are, if you opt to own a home, there are ten tax tips you should be aware of.
#1: Mortgage Interest
No one likes to do their taxes. It’s probably the single most confusing and frustrating task every adult American annually takes on, which is why tax services are such big business players. The foreboding question that arises every year is whether or not to itemize.
The government will give a nice chunk of change without the tallying of costs and the review of tax codes, but for homeowners, the easy way out isn’t always the best. Depending on your mortgage agreement, the interest you pay is entirely deductible and can lead to a heftier tax credit versus the standard deduction. You just need the time and patience to check into it.
#2: Deductible Property Taxes
It sounds like a double standard, but the IRS actually allows homeowners to deduct taxes on their tax returns. No joke! You can claim both local and state property taxes on your federal tax return.
Chances are you’re paying local and state property taxes on every mortgage payment you make. They are stored in escrow for the mortgage lender to pay the taxes annually. Your yearly summary should list the cost of those property taxes, and this number can be deducted. However, you can only claim this deduction if you itemize your deductions. That standard deduction is looking a little less appealing, isn’t it?
#3: Casualty Losses
Let’s say something drastic took place within the last year that caused damages to your home or property. The IRS allows homeowners to claim such damages as a loss. By itemizing your taxes, you have the ability to write off casualty losses.
The category of casualty losses is fairly broad. The IRS classifies such losses as those caused by a “sudden, unexpected or unusual” event. For homeowners, this allows for anything from losses due to vandalism to a natural disaster. Although you can only write off the property’s fair market value, it’s worth pursuing in the event of casualty losses.
#4: Debt Cancellation
While not the greatest of credits to discuss and somewhat unique, if you are looking to sell an underwater property quickly, any cancellation of debt is counted as income. So if you owned $150k on your mortgage and you short sell for $100k, you have to report the difference of $50k as income, which can quickly become a troublesome burden.
Foreclosures work differently. If you were personally responsible for the loan, you would be responsible for the cancellation of the debt. If not, the cancellation penalty may fall to someone else.
#5: The Advantage of Selling
Buying and owning a home isn’t the only way to grab a tax break; selling your home comes with some marked advantages. Now, we are not telling you to sell just for a tax credit, but if you are looking to sell your home, you can grab some nice benefits from Uncle Sam.
For example, if you advertised the sale of your house in any way, you could write off the involved expenses. If you bought title insurance, you could itemize the expense as a write-off. You also have the option of claiming some repairs related to the sale as a write-off. The only catch is you have to have lived in the house for a minimum of two to five years to claim ownership and quality for these itemizations.
#6: Itemizing Properly
The greatest tax breaks for homeowners lie in itemizing, but before you rack your brain for anything and everything you could write-off, stop. Everything you itemize needs to be backed by documentation. You need receipts, bills, any paperwork the IRS might want to see should they decide to pull your tax return for an audit.
If you can’t back up your claims with documentation, don’t claim them! Be sure to keep hard and digital copies of all receipts along with a backup of everything. The last thing you want to do is lose documentation.
#7: Moving Expenses
Wouldn’t it be nice to write off your moving expenses once you buy a house? Depending on your circumstances, you just might have this option.
Let’s say you’re moving to Bentley Park in Virginia Beach for a new job, you qualify for claiming your moving expenses as a deduction on your tax return. Now, chances are the new job will need to be found within a specific distance of your old and new house, and you’ll be required to work full-time for at least 39 weeks during the year after your move. If you meet the requirements, this is a pretty sweet deal.
#8: Purchasing a Second Home
Buying a second home isn’t the most cost-effective way to save on taxes, but if you find yourself comfortably able to do so, you do get a tax perk. All of the tax breaks we’ve covered also apply to the purchase of a second home. So if you can afford that vacation home at Oceanfront, buy it!
#9: Home Office Deductions
Do you work from home? In the past, claiming a home office deduction was laced with the fear of triggering an audit. The IRS has made claiming a home office deduction much easier, and there is no evidence to support the theory that it raises a red flag for an audit. All you need is a dedicated space.
#10: Boat or RV Loan Kickbacks
Recreational vehicle or boat loans that include a sleeping and cooking area and sanitation can be written off with the mortgage interest credit. In other words, if you have the ability live in your boat or RV, you can count it as a second home and take the applicable deductions.
So what do you think? Time to start itemizing over taking the standard deductions? If you haven’t purchased your first time, then you’ve just read ten reasons to do so!
Having lived in other cities, such as Cleveland and Idaho Falls, I only appreciate Hampton Roads that much more. Why? Because from almost anywhere in our area, a beach is only about a 20 minute dri....