Speaking of Taxes, Home Owner Tax Tips 2014

Found this great article on: FoxBusiness.com By Kay Bell of Bankrate.com Published January 31, 2014 - Good stuff for my homeowners! If you're among the new property owners, congratulations. You've just taken another step up the American-dream ladder and are a homeowner. Along with the joy of painting, plumbing and yard work, you now have some new tax considerations. The good news is you can deduct many home-related expenses. These tax breaks are available for any abode -- mobile home, single-family residence, town house, condominium or cooperative apartment. Most homeowners enjoy tax breaks even when they sell their residence. The bad news is, to take full tax advantage of your home, your taxes will likely get more complicated. In most cases, homeowners itemize. That means you're not living on "EZ" Street anymore; you've moved to Form 1040 and Schedule A, where you'll have to detail your tax-deductible expenses. For many homeowners, the effort of itemizing is well worth it at tax time. Some, however, might find that claiming the standard deduction remains their best move. If you do find that itemizing is best for your tax situation, here's a look at homeowner expenses you can deduct on Schedule A, ones you can't and some tips to get the most tax advantages out of your new property-owning status. {Please consult a tax professional for questions or advice.} Mortgage interest - Your biggest tax break is reflected in the house payment you make each month since, for most homeowners, the bulk of that check goes toward interest. And all that interest is deductible, unless your loan is more than $1 million. If you're the proud owner of a multimillion-dollar mortgaged mansion, the Internal Revenue Service will limit your deductible interest. Interest tax breaks don't end with your home's first mortgage. Did you pull out extra cash through refinancing? Or did you decide instead to get a home equity loan or line of credit? Generally, equity debts of $100,000 or less are fully deductible. What if you're the proud owner of multiple properties? Mortgage interest on a second home also is fully deductible. In fact, your additional property doesn't have to strictly be a house. It could be a boat or RV, as long as it has cooking, sleeping and bathroom facilities. You can even rent out your second property for part of the year and still take full advantage of the mortgage interest tax deduction as long as you also spend some time there. But be careful. If you don't vacation at least 14 days at your second property, or more than 10% of the number of days that you do rent it out (whichever is longer), the IRS could consider the place a residential rental property and ax your interest deduction. Points - Did you pay points to get a better rate on any of your various home loans? They offer a tax break, too. The only issue is exactly when you get to claim them. The IRS lets you deduct points in the year you paid them if, among other things, the loan is to purchase or build your main home, payment of points is an established business practice in your area and the points were within the usual range. Make sure your loan meets all the qualification requirements so that you can deduct points all at once. A homeowner who pays points on a refinanced loan is also eligible for this tax break, but in most cases the points must be deducted over the life of the loan. The same rule applies to home equity loans or lines of credit. When the loan money is used for work on the house securing the loan, the points are deductible in the year the loan is taken out. But if you use the extra cash for something else, such as buying a car, the point deductions must be parceled out over the equity loan's term. And points paid on a loan secured by a second home or vacation residence, regardless of how the cash is used, must be amortized over the life of the loan. Taxes - The other major deduction in connection with your home is property taxes. A big part of most monthly loan payments is taxes, which go into an escrow account for payment once a year. This amount should be included on the annual statement you get from your lender, along with your loan interest information. These taxes will be an annual deduction as long as you own your home. If this is your first tax year in your house, dig out the settlement sheet you got at closing to find additional tax payment data. When the property was transferred from the seller to you, the year's tax payments were divided so that each of you paid the taxes for that portion of the tax year during which you owned the home. Your share of these taxes is fully deductible. Property taxes must be deducted as an itemized expense on Schedule A. When you sell - When you decide to move up to a bigger home, you'll be able to avoid some taxes on the profit you make. Years ago, to avoid paying tax on the sale of a residence, a homeowner had to use the sale proceeds to buy another house. In 1997, the law was changed so that up to $250,000 in sales gain ($500,000 for married, filing jointly) is tax-free as long as the homeowner owned the property for two years and lived in it for two of the five years before the sale. If you sell before meeting the ownership and residency requirements, you owe tax on any profit. The IRS provides some tax relief if the sale is because of a change in the owner's health, employment or unforeseen circumstances. In these cases, the tax-free gain amount is prorated. I hope this article was thought provoking and offered you some suggestions as to how to save money (or get a better refund) on your taxes now and in the future. If you have a need for real estate; new, second, vacation or investment, call me.