April used to conjure up memories of spring break and beach vacations... now it only means one terrifying thing to me...tax time. Given no one can avoid this misery I thought I'd share a few things that I've just come across regarding common mistakes that home owners make while filing their taxes. Let me preface this by saying that I am neither an accountant nor an attorney and only they can decipher what your tax return can and should legally look like. That being said, you should make your accountant work for every dime he/she gets by asking a lot of questions. Here are just a few ideas that may put/keep a few dollars in your pocket.
Don't miss the first-time home buyer tax credit: Pretty self-explanatory but remember that if you met the 2010 deadline, you are entitled to take this tax credit into account when filing. Also, remember that Congress extended the first-time home buyer credit in some instances. Verify that you don't fall into one of the circumstances.
Home office tax deduction...is it worth it? This deduction may not be as good as it seems or so my accountant mentioned to me last year when I began some consulting work from home. He mentioned that historically this does not amount to that much of a deduction and needs to be very well documented. In addition the deduction has to be recaptured if you make a profit when you sell your home. But the scariest part is that use or misuse of this deduction seems to pique the IRS's interest in you and your tax return.
Deducting the wrong year for property taxes: Make sure that you deduct the property tax amount you actually paid in 2010, no matter what the date reads on your tax bill. You should be taking a deduction in the year you (or the holder of your escrow account) actually paid them. And despite that fact that some taxing authorities work a year behind-that is, you're not billed for 2010 property taxes until 2011, this is irrelevant to as it relates to IRS.
Confusing escrow amount for actual taxes paid: If your lender escrows funds to pay your property taxes, don't just deduct the amount escrowed. 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 send you an official statement listing the actual taxes paid.
Private mortgage insurance: Apparently more people than you might imagine forget to deduct their PMI payments. Don't be one of them!!
Tracking home-related expenses: Maintain good record keeping. We just had a new energy-efficient furnace installed and in order for us to benefit from the tax credits being offered we have to have proper documentation, especially if we were to be audited. Keep a file of your certification statements for energy tax credits or the company statements for your PMI, etc. If you are eligible for this tax credit make certain your accountant fills out the correct form, such as Form 5695.
Like I said, tax time is no fun for anyone but being an active participant in the process may help you and your accountant save you some money. There is so much information on the internet as well. If you're not sure it may be as simple as a Google search, then just verify with your accountant that you haven't missed some money saving opportunities.
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