9 Ways For Real Estate Tax Breaks
Rick & Rick Strohm, Jr.
February 3, 2012
We all know that April 15th is tax day, aren't you excited? If you're like most American's then the answer is "no". Keep in mind that if you are expecting a tax refund, which may include homeowners looking for tax related perks on real estate, should file as soon as possible to get their check quicker.
I will state that I am not tax expert and you should seek advice from your tax professional, but here are 9 tax documents that could help you gain every penny of your tax reward for owning a home.
1) IRS Form 1098 (Mortgage Interest Statement) - this is the largest real estate tax deduction, which allows you to deduct 100% of the mortgage interest you paid in a year. This also includes all prepaid interest (points) that you might have paid upon the close of escrow, if you bought a home last year. In fact you should have received Form 1098 in the mail from your financial institution/mortgage lender. If you have not received Form 1098, you should check your lenders online account management services and you can get this form digitally.
2) Property Tax Statements. If you are a homeowner, you have the right to deduct the property taxes you pay to your city, county and state. However, you are "not" allowed to deduct miscellaneous expenses that are sometimes bundled with your local taxes (i.e. waste management, street lighting, etc.). Talk with your professional tax adviser before you make any deductions.
3) Moving Expense Receipts. Yes - moving expenses are tax deductible "only" if the move was closely related to the start of new work or changed your job location (this must meet IRS time/distance tests). Again talk with your tax professional. You qualify for this deduction if your new home is at least 50 miles farther from your new workplace than your old home, and you must be employed full-time.
4) Uniform Settlement Statement (HUD-1). Did you buy or sell a home last year? If so, then you received a HUD-1 Settlement Statement (this form is quite long, and reflects all credits/debits for the buyer and seller - ask your Realtor if you need help finding this form). The HUD-1 may help you out at tax time - prepaid interest, prorated property taxes you paid at closing, origination fees and discount points. Again you need to seek professional advice from your tax professional, but some states offer tax credits for buying a foreclosed property, etc.
5) Income & Expense Statements from Rental Properties. Now is the best time to own rental properties; if your smart you purchased one (or more) this past year. As a landlord, your taxes will be more complicated than that of the average homeowner. As a result, you will need to have all income and expense statements to file your taxes. I know I am sounding repetitive, but you need to consult your tax professional before filing your taxes. This will ensure that you are depreciating appropriately the property over time and will lessen the risk of future audits.
6) Utility Statements for Home Office. There are tax deductions for using your home as a business or home office. Keep in mind that to obtain these deductions your home must be used "regularly and exclusively" as your business. Consult with your tax professional, as you might be able to claim that portion of your home as a home office which in turn will deduct some portion of your home utilities and costs of repairs.
7) IRS Form 1099 - Cancellation of Debt Statement. Did you lose a home to foreclosure, short sale or deed in lieu of foreclosure last year? You might have received some type of Form 1099 from your lender, which charged them with income in the amount of the mortgage debt that has been canceled. Let me break this down for you. You borrow money from someone, they cancel the debt, the original money borrowed now becomes "income" to the IRS (and we all know that "income" is taxable by the IRS). Seek professional advice from your tax pro!
8) Mortgage Credit Certificate (MCC). In the past few years have you purchased a home using a Mortgage Credit Certificate? If so, you could get a rather large tax credit. This tax credit is based on the percentage of mortgage interest you paid (on top of your mortgage interest deduction). Keep in mind that MCCs only apply as long as you live in the home and have a mortgage on that home, and they only apply to defray taxes you actually owe. In other words, you cannot use them to get a refund. Once again (repetitive yet??) consult with your tax professional.
9) Energy Efficient Home Improvements. Have you heard of the Nonbusiness Energy Tax Credit? This tax credit applies to homeowners who made improvements to their homes with energy efficient upgrades. Again you could receive a tax credit for these improvements. In 2011 did you install energy efficient upgrades like insulation, new dual-pane windows, energy efficient heat pump/furnace? You may be eligible for a tax credit of 10% the cost of those upgrades - up to $500. Ask your tax professional if you eligible for this tax credit.
Ok there you have it, just some "tax" tips for you to discuss with your tax professional. Remember - I am not a tax expert (and never claimed to be), but thought this information might get you thinking and just might hand you over a larger tax refund check this year!
Contact me with any questions you may have!