Are you still figuring those home deductions?
If you choose the wrong things, you may pay more, or worse, the IRS might come calling. Real estate agents like myself often have information at their fingertips and can also refer you to a tax specialist.
Following are some common things people miss when completing their tax returns.
Energy Tax Credits: There are different credits, ranging from windows, HVAC systems, insulation and roofs, which could be a boost to tax savings. These credits apply only to your primary residence. Houselogic.com provides an outline for some of these energy credits. And always check on state regulations through a tax specialist. Complete Form 5695 Residential Energy Credits to include with your taxes.
Property Taxes: Regardless of how the local taxing unit bills, i.e. bill for 2010 taxes comes in 2011 - you claim only the amount that was really paid in 2010. People often confuse this and end up claiming an incorrect amount.
Taxes vs. Escrow: An escrow account is putting the money in a bank account to be paid to a third party. If the bank lender accepts your money to pay taxes, it goes to an escrow until the tax bill is due. Let's say you pay $1,500 in escrow and your tax bill is $1,300. The extra $200 stays in the account. However, you are only eligible to claim $1,300 on your Federal taxes. Typically, the bank adjusts the escrow amount each year.
Refinance Points: Did you take advantage of the low mortgage rates to refinance in 2010? Don't be quick to deduct all the money you paid in points for the new loan. You can only deduct the points over the life the loan. For example, $2,400 points for 15-year loan, allows a $160 per year deduction for the loan term.
Private Mortgage Insurance (PMI): If you bought a home in 2010 and put less than 20% down, you were probably required to purchase the PMI insurance. PMI is a Federal deduction. Check with a tax specialist for income guidelines on this deduction.
Home Office: You need to weigh the options on whether or not to take this deduction. It often doesn't add up to much; if your house is sold at a profit, the deductions may have to be brought back. The "home office" may raise a red flag for the IRS.
First-time Buyer: In 2010, there was an $8,000 credit for first-time home buyers, plus a $6,500 one for repeat buyers. Such a large credit should not be overlooked, but you must follow the correct procedure to claim it. Check IRS for information.
Home Expenses: Save documents showing what you claim on Federal taxes is accurate. For example, the PMI insurance, major home repairs, energy credits are all deductible - you want to be sure to have these records just in case the IRS should request them.
Capital Gains: Did you sell your house in 2010? Check the IRS Publication 523 to understand the different methods for defining any "gains or profits" from the sale of your house.
Mortgage Interest: Know what amount can be taken. The current ruling is deductible interest only for the first $1 million debt. Remember, also deductible is the interest paid on a home equity line of credit.
According to tax experts these are common mistakes people make on home related tax issues. You can use these to finish up your 2010 taxes or as guidelines to prepare when filing the 2011 returns.
If I can help you with a tax specialist referral, or with finding your perfect home in Deer Creek, Edmond, Shawnee, or Oklahoma City, please contact me online, give me a call at 405-366-1111, or check out my website.
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