Tax Time Advice for Homeowners

Attention all homeowners in North Baltimore and surroundings!  It's tax time--do you know your refund potential?  Among the joys of homeownership are the tax refunds you can get. In fact, by itemizing you can deduct 100 percent of your mortgage interest and property taxes on your return. A recent article on walletpop.com offered five important tax tips on how homeowners can get more from (and pay less to) Uncle Sam.

Itemize Your Return - It's been estimated that nearly 40 percent of all homeowners don't itemize their income taxes and so lose out on many major tax advantages. So even if you don't think you'll qualify, try itemizing and compare the numbers to taking the standard deduction. You might be surprised.  Tax software such as TurboTax can do all the calculations once you plug in the numbers.

Be Careful with Home Office Deductions - To know what you'll save on your taxes by writing off your home office, multiply your current tax bracket by $3,686, which is the average home office deduction. However, if you do this and then sell your home, the home office space cannot be exempted from capital gains tax. That's only for your personal space. Talk with your accountant or tax person to see if the tax savings now are worth the tax hassles when you decide to sell.

Tax Relief Ending for Short Sales and Foreclosures - Today, any mortgage balance canceled by short sale, modification, or foreclosure is taxed at a lower rate based on the Cancellation of Debt Income (CODI). In 2012 this will change and homeowners will be taxed at the going rate. So try to get closure now if you're in this situation.

Refinances/Property Tax Appeals - It's great to lower your interest rate by a few points. However, when your interest payments and taxes decrease, so do the tax deductions associated with your home. This can mean a lower tax refund. Plan this into your thinking when you refinance.

Closing Costs - Any fees or discount points you paid to your lender at closing are tax deductible. This is true even if the seller paid those costs. Your HUD-1 settlement statement will have these numbers as will your real estate agent or mortgage broker.

As you complete those tax returns, keep these tips in mind to get the largest refund possible. It's well worth the bit of extra work.

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