Sunday, March 16, 2014

The Homeowner's Guide To Deductions

We had a quintessential jovial uncle in the family who said, "Fools build houses for wise men to live in". He may have been partly right in his own case since he ended up moving every time he bought a home. 

But for those new home owners, things may not seem so foolish when they come to the realization that they may be able to itemize deductions they couldn't before. The standard deduction is $6100 for those filing single & $12200 for those filing married joint. Having enough in itemized deductions to take you above the standard will help bring down your tax liability. 

So what are these additional deductions that lower your taxes & increase your refunds? Let's take a look! 

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  • Mortgage Interest: This one is a biggie & the most common one & every knows (or should know) about it! The cap on deductibility is $1.1 million in mortgage debt!  This can include first and second mortgages. It can also include first and second homes. Interest on home equity loans are deductible as well- beware though if the home equity loan was not used to improve your home, you cannot deduct it. Points paid to bring down the rate of the loan can also be amortized over the life of the loan on your federal tax return. 
  •  Private Mortgage Insurance (PMI): It is the insurance you pay your mortgage company if you didn't put down 20%. Mind you, 2013 may be the last year you can claim PMI and it has to be on your form 1098. Please don't confuse this with hazard insurance you pay for protection against fire or loss. 
  • Residential Energy Credits: 2013 can also be the last year to claim up to $500 in green energy credits. You can claim Insulation, energy efficient windows, doors, high efficiency air conditioners, heaters, installed in your main residence. There is an additional credit for solar energy installations in your primary residence. 
  • Property Taxes: Property taxes paid on your primary residence can also be itemized on your federal tax return. Many states also provide a credit for property taxes against your state tax in addition to the federal. Make sure you know if the state you live in allows these credits and what the amounts are.
  •  Casualty Losses: Given the harsh winter we have had in most of North America, many of us have dealt with flooded basements & other casualty losses. You can get a tax break from a loss from disaster. This loss has to be out-of-pocket, and must exceed 10% of your income & not covered and compensated by your insurance. Make sure you can prove the value of your loss. 
So folks, don't be like my uncle, use your home deductions wisely and continue to stay in & enjoy your home. 


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As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. 
More of my contact information is on my website, www.mntaxsolutionsllc.com