March 25, 2016

Tax Prep Advice for Homeowners

tax-article-imageHomeowners have some tax considerations that include home-related deductions. Tax breaks for homeowners include those for anyone who owns a mobile home, single-family residence, townhouse, condo, or cooperative apartment. Even if you sold your residence, there is a good chance that you still can enjoy a tax break. However, in order to enjoy all of the deductions that apply to homeowners, you most likely will need to switch from an EZ form to a Form 1040 and Schedule A, so that you can itemize your deductions and detail your tax-deductible expenses. Your taxes may be a bit more complicated if you are a homeowner, but here is some tax prep advice to help you through filing your taxes.

Deduct the Correct Year for Your Property Taxes

Depending on where you live, your tax authority may work a year behind, meaning that you may not be billed for your 2015 property taxes until 2016. The IRS, however, does not care when you are billed; they care about when you actually paid your property taxes. That’s why it’s critical for you to take a tax deduction for property taxes in the year you pay them.

When preparing your taxes as a homeowner, you’ll need to include the amount you actually paid in property taxes in that tax year, regardless of the date that appears on your tax bill. Don’t confuse the payments for different years and claim the incorrect amount; rather, ensure that you are deducting the correct year for your property taxes on your federal tax forms.

Be Aware of Your Eligible Tax Deductions as a Homeowner

Most taxpayers are aware that they can include their mortgage interest when filing their taxes in order to get an income tax deduction. But, some homeowners may not realize that there are other tax deductions they may be able to take on either their principal residence or their second home:

● Property taxes, including any taxes you may have paid to the seller
● Mortgage interest on both primary and secondary residences
● Interest on up to $100,000 borrowed on a home equity loan or home equity line of credit
● Points paid at the time of the purchase of the home, including any that the seller paid for you
● Premiums paid for Mortgage Insurance Premiums for policies issued after 2006
● Home improvements required for medical care

It’s also important to recognize that there are a few deductions that homeowners may not include when filing their taxes, such as homeowners association dues, home insurance, home appraisal fees, and the cost of improvements you have made to your home for any purpose other than related to medical reasons.

You May be Eligible for Energy-Efficiency Tax Credit

If you have made certain energy-efficient or renewable-energy additions or improvements to your home, you may be eligible for a tax credit. Efforts you’ve made to make your home more energy efficient, such as windows, insulation, or air-conditioning and heating systems, may be worth a tax credit of $500.

Additionally, if you have installed any equipment that uses renewable energy, such as the wind or sun, to help power your home, you may be eligible for the Renewable Energy Efficiency Property Credit. As long as the equipment was in place and in service by the end of the year for which you’re preparing taxes, you may be eligible for up to 30% of the cost of the equipment, installation included. Many homeowners who have installed residential solar equipment, for example, qualify for this particular tax credit.

Report Cancellation of Mortgage Debt

It is very important to report any cancellation of mortgage debt when filing your tax return, because your overall tax liability may change and subject you to penalties from the IRS if you fail to do so. Any mortgage that is reduced or canceled by a lender must be reported when filing your taxes. It’s always better to be safe than sorry when deciding what to report to the IRS as a homeowner.

Homeowners certainly have more tax considerations to make than non-homeowners. But, being aware of your deductions and tax liabilities is a first step in taking charge of an otherwise complicated tax preparation process as a homeowner.

Abut the Author | Jeff Watson is a self-proclaimed math nerd. He firmly believes that math is the language of the universe and that by understanding mathematical concepts, we can better understand the world around us. He started DataRangers.org in the hopes of providing resources, games, and web-based calculators to help people of all ages battle their math fears.

Photo by stevepb via Pixabay

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