Wednesday, March 23, 2011

12 Tax Season Tips for Home Owners

Owning your own home opens the door to many tax opportunities.

CCH, a Wolters Kluwer tax information company, suggests these 12 ways to save on your tax return:

• If you bought a home last year, you may benefit from a refundable first-time home buyers’ credit of 10% of the purchase price of a new home—up to $8,000. The credit is available for homes purchased before October 1, 2010 and you must have entered into a binding agreement to buy the home before May 1, 2010. You can’t have had an ownership interest in a principal residence during the three years before the purchase.

• A refundable repeat home buyers’ credit is available is you entered a contract to buy a home by April 30, 2010 and closed on the sale of the home before October 1, 2010. The credit is 10% of the purchase price with a limit of $6,500. To claim the credit, you have to have owned and used the same home as a principal residence for five straight years within a time period that may go back a maximum of eight years. You also must be at least 18 years old and your home purchase price must be under $800,000.

• You can exclude up to $250,000 of gain on the sale of your home (up to $500,000 for joint filers) if you have owned and lived in the home as your principal residence for two out of the five years prior to the sale, although a partial exclusion may be available for sales due to a change of employment, health, or unforeseen circumstances. The periods of ownership and occupancy do not have to be identical.

• You can take the interest on your mortgage indebtedness of up to $1 million as an itemized deduction. The interest can be on your principal residence and one additional residence.

• For ordinary income purposes, up to $100,000 in home-equity loan interest can also be deducted. In regards to the alternative minimum tax, interest on home-equity loans is deductible only if the loan is used to acquire, build, or substantially improve a home.

• The points you paid on a mortgage loan you used to buy or improve your principal residence are deductible in the year you paid them, as long as the points represent a customary practice in your area. Points paid on a refinancing loan must be deducted over the term of the loan.

• Through 2010, you can deduct mortgage insurance premiums as mortgage interest. However, the mortgage insurance had to be originally acquired on or after January 1, 2007.

• You can take the state and local property taxes you pay as an itemized deduction. An option to take up to $500 ($1,000 for joint filers) as an additional standard deduction for real estate taxes expired at the end of 2009 and is not available for 2010.

• If you rented your home for fewer than 15 days during the year, you don’t have to include that rental income in your gross income, but you can’t deduct any expenses related to the rental either.

• If your lender forgave your mortgage debt of up to $2 million on your principal residence, as in a write-down or foreclosure, the transaction won’t be treated as “cancellation of debt income.” This special relief is temporary and is available for six years, retroactively for taxpayers filing amended returns, from January 1, 2007 through the end of 2011.

• If you own a home and installed qualifying energy-efficient fixtures or systems by December 31, 2010, you may claim a 30% tax credit—up to a maximum of $1,500 for both the 2009 and 2010 tax years. The American Recovery and Reinvestment Act of 2009 created energy tax credits for installing insulation, energy-efficient exterior windows or doors, heat pumps, furnaces, central air conditioners, or water pumps.

• A separate 30% credit is available to home owners who installed alternative energy equipment such as fuel cells, solar water heaters, solar electric equipment, small wind energy projects, or geothermal heat pumps. Although the tax credit is more likely to apply for businesses, it’s also available for home owners.
Source: CCH, a Wolters Kluwer business

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