As you calculate your tax returns, consider each home
tax deduction and credit you are — and are not — entitled to. Running afoul of
any of these 9 home-related tax mistakes — which tax pros say are especially
common — can cost you money or draw the IRS to your doorstep.
Sin #1: Deducting the wrong year for property taxes
You take a tax deduction for property taxes in the
year you (or the holder of your escrow account) actually paid them. Some taxing
authorities work a year behind — that is, you’re not billed for 2013 property
taxes until 2014. But that’s irrelevant to the feds.
Enter on your federal forms whatever amount you actually paid in 2013, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.
Enter on your federal forms whatever amount you actually paid in 2013, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.
Sin #2: Confusing escrow amount for actual taxes paid
If your lender escrows funds to pay your property taxes,
don’t just deduct the amount escrowed, says Bob Meighan, CPA and vice president
at TurboTax in San Diego. The regular 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.
For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200. Your lender will send you an official statement listing the actual taxes paid. Use that. Don’t just add up 12 months of escrow property tax payments.
For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200. Your lender will send you an official statement listing the actual taxes paid. Use that. Don’t just add up 12 months of escrow property tax payments.
Sin #3: Deducting points paid to refinance
Deduct points you paid your lender to secure your
mortgage in full for the year you bought your home. However, when you
refinance, says Meighan, you must deduct points over the life of your new loan.
If you paid $2,000 in points to refinance into a 15-year mortgage, your tax
deduction is $133 per year.
Sin #4: Misjudging the home office tax deduction
The deduction is complicated, often doesn’t amount to much
of a deduction, has to be recaptured if you turn a profit when you sell your
home, and can pique the IRS’s interest in your return. But there’s good news –
there’s a new simplified home office deduction option if you don’t
want to claim actual costs. If you’re eligible, you can instead claim $5 per
sq. ft. up to 300 feet, or $1,500.
Sin #5: Failing to repay the first-time home buyer tax credit
If you used the original home buyer tax credit in 2008,
you must repay 1/15th of the credit over 15 years. If you used the tax credit
in 2009 or 2010 and then sold your house or stopped using it as your primary
residence, within 36 months of the purchase date, you also have to pay back the
credit.
The IRS has a tool you can use to help figure out
what you owe.
Sin #6: Failing to track home-related expenses
If the IRS comes a-knockin’, don’t be scrambling to compile
your records. Many people forget to track home office and home improvement
expenses, says Meighan. File away documents as you go. For example, save each
manufacturer’s certification statement for energy tax credits and lender or
government statements to confirm property taxes paid.
Sin #7: Forgetting to keep track of capital gains
If you sold your main home last year, don’t forget to pay capital
gains taxes on any profit. You can exclude $250,000 (or $500,000 if you’re
a married couple) of any profits from taxes. So if your cost basis for your
home is $100,000 (what you paid for it plus any improvements) and you sold it
for $400,000, your capital gains are $300,000. If you’re single, you owe taxes
on $50,000 of gains. However, there are minimum time limits for holding
property to take advantage of the exclusions, and other details. Consult IRS
Publication 523.
Sin #8: Filing incorrectly for energy tax credits
If you made any eligible improvements in 2013,
such as installing energy-efficient windows and doors, you may be able to take
a 10% tax credit (up to $500; with some systems your cap is even lower than
$500). But keep in mind, it’s a lifetime credit. If you claimed the credit in
any recent years, you’re done. Fill out Form 5695.
The first part of the form, which covers systems eligible
for a larger tax credit through 2016, such as geothermal heat pumps, can be
complex and involves crosschecking with half a dozen other IRS forms. Read the
instructions carefully.
Sin #9: Claiming too much for the mortgage interest tax deduction
Taxpayers are allowed to deduct mortgage interest on
home acquisition debt up to $1 million, plus they can also deduct up to
$100,000 in home equity debt.
This article provides general information about tax laws and
consequences, but shouldn’t be relied upon as tax or legal advice applicable to
particular transactions or circumstances. Consult a tax professional for such
advice.
Read more: http://www.houselogic.com/home-advice/taxes-incentives/common-tax-mistakes/#ixzz2tPbIA1Y3
No comments:
Post a Comment