Now is the time to start putting together records and information for your 2012 tax returns which are due April 15, 2013. Here are some tax questions homeowners need to ask:
1. What tax benefits did homeowners get in the recent 'fiscal cliff' budget agreement? Two tax provisions that ended in 2011 were reinstated for 2012 and 2013: 1. Mortgage insurance premiums are again tax deductible for people with adjusted gross income below $110,000; 2. Homeowners will continue to get tax credits for certain energy-efficient home improvements. For details, visit www.irs.gov or ask a tax professional.
2. What are the home related tax deductions people most often claim? One of them is the mortgage interest deduction (which can mean about $3,000 in tax savings for the average itemizing homeowner) and another one is the deduction for property taxes.
3. What is the #1 mistake homeowners make with their taxes? If your real estate taxes are not part of your monthly mortgage payment, you are billed by your town or county. Those tax bills often include other items like trash collection and snow removal fees. Be careful to deduct only the part of your bill that is property tax.
4. What tax deduction should I be sure to take? Make sure to deduct any points you paid on the mortgage you took out to purchase your home in the tax year you paid them. But if you refinanced, you need to amortize and deduct any points you paid over the life of the mortgage. People can easily forget the deduction after a few years.
5. What's the most important thing I should do as a first-time homeowner? Look at the HUD-1 form you received when you closed on your home. There may be fees like prepaid taxes or interest you can now deduct.
6. What should I look out for if I've owned my home for a number of years? If you've refinanced and taken out home equity loans or lines of credit, remember that the maximum outstanding home equity debt that's deductible is $100,000 and the maximum amount of deductible mortgage interest is $1 million.
7. Which home improvement records should I keep? Keep all receipts for the capital improvements you've made to the property. Tax rules let you add these expenses to your home's cost to reduce any profit you might have to pay taxes on when you sell. But most people are exempt from taxes on the first $500,000 of profit for joint filers ($250,000 for single filers).
8. What's the difference between a capital improvement and a repair? Fixing a furnace so it keeps working is a repair; replacing it is a capital improvement.
9. Will taking a home office tax deduction increase my chances of being audited? Taking the deduction shouldn't generate an audit by itself. But if your expenses are unusually large, or if it looks like you're using office costs to create artificial losses, the IRS will probably look into it.
NOTE: Always consult a tax professional for the definitive answer to any tax question.
AN OUNCE OF PREVENTION
Doing routine home maintenance is the best way to avoid those really expensive repairs that can come when things aren't looked after. Plus, when it comes time to sell, buyers will pay more for a well-maintained home. Here's how to stay on top of the upkeep.
1. Make a schedule and stick to it. Most maintenance can be done annually: roof, gutter, and downspout repairs; sealing exterior cracks; weatherproofing windows and doors; furnace and air conditioning checkups; inspecting and cleaning the drainage system. Put these on your calendar, then do them!
2. Take care of problems as soon as they appear. If a pipe leaks, repair it immediately. If a roof looks worn, repair it before it leaks. When gutters back up, even on a new house, water can come down inside walls and even damage the framing. You want to avoid the extra damage that can occur after something fails.
3. Assemble a team of contractors and repair people. Ask friends in your area, neighbors, and your real estate agent to recommend trades people. When buying a home, ask the seller for a list of the people who have worked on the property.
4. Be careful when choosing the least expensive contractor or building materials. Don't make cost the most important factor. Shoddy work and inferior materials will cost you more when you have to redo the job.
5. Ask your home inspector to re-inspect your property. Periodically bring in a professional inspector to show you what needs to be done to keep your home in good shape. Inspectors can point out simple, inexpensive things, like sealing cracks and touching up paint, which can make a big difference in the long run.
It's also a good idea to keep up with the latest home financing information. If you're thinking of buying a new home, refinancing your existing one, or funding home improvements, please call or email us – we're always here to help.... Have a great day!
P.S. The housing market is in the early stages of recovery, as home prices inch up in many areas yet remain extremely affordable – and mortgage rates stay historically low. But if you're thinking about buying or refinancing, it's smart to get the financing process started early. Please call or email us to talk about the attractive options available now.