The 2013 tax deadline is quickly approaching. In this article you will find 10 Real Estate Tax Deductions Home Owners get to take advantage of. The tax laws change on a yearly basis depending on what happens in Congress and Tax Advice should always be sought from a Qualified Tax Professional. As a former owner of a Tax Firm here in the Bronx that served thousands of Bronxites I am constantly following the changes in the tax code, especially as it pertains to Real Estate Tax. April 15th is the Tax Deadline.
Disclaimer – This is only an informational summary of current tax issues in the news. If you need tax advice, please contact a tax attorney or CPA
- Home Improvement Loan Interest Deduction: Have you taken out a home equity loan to make capital improvements to your home? This can be used as a tax deduction. This means that upgrading your home not only makes it more comfortable to live in, adds value to your home but you also get a tax deduction as well.
- Property Tax Deduction: Did you know that you can deduct your property tax from your income tax? This is a benefit that lasts a lifetime. Unless congress changes the rules.
- Mortgage Interest Deductions: One of the Prime Benefits of home ownership has always been the ability to deduct the interest of their mortgage from their tax bill. In some cases this can actually make owning a home cheaper than renting.
- Mortgage Points Deduction: If you paid any points on the purchase of your home or refinance of your home. You can deduct those points from your tax bill which further reduces your liability.
- Private Mortgage Insurance Deduction (PMI): If you are taking advantage of an FHA Loan and buying your home with less than 20% down, you will have to pay the PMI. This is an added cost that can add a few hundred dollars to your monthly payment. You can deduct some of those payments from your tax bill too.
- Home Office Deduction: If you have a home office, this too can be deducted from your tax bill. There are some things to consider. It must be your primary place of doing business and must be used just for business.
- Did you Sell your home?: One of the best benefits of homeownership is when you actually sell your home most of the money you profit from the sale is tax free money. For example: Individuals who profit from the sale of their primary residence can profit up to $250,000 without having a tax liability. Married Couples can have a profit of up to $500,000 without a tax liability. Note: It needs to have been your Primary Residence and you generally need to have lived there for 2 years.
- More than $250K or $500K in Profit?: If you were able to earn more than whats allowed for a tax free windfall, all is not lost. Selling a home has significant costs that you can deduct from your tax liability. Closing Costs, Capital Improvements, repairs to damaged property etc can all be added up and used as a deduction. Make sure you have a competent tax specialist who is familiar with Real Estate Tax Benefits.
- Energy Efficiency Upgrade: If you upgraded your home to be energy efficient, then not only have you helped the environment but you also helped your bottom line come tax time.
- Loan Forgiveness Deduction: The Mortgage Debt Forgiveness Act of 2007 was created to help homeowners who were under water on their mortgages. For example: If you owned a home with an outstanding loan of $300K but were able to convince your lender to do a short sale and accept only $200K, the government would have considered the $100K as a gift from the bank and that would have tax consequences. The Debt Forgiveness Program relieved you of the tax liability which makes short sales viable.
These are some of the reasons why homeownership is a great opportunity for people to reduce their tax liability. Happy House Hunting!
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IRS-suggested disclaimer: To the extent that this message or any attachment concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. This message was written to support the promotion or marketing of the transactions or matters addressed herein, and the taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.