If we asked you about your least favorite times of the year, tax season might rank pretty high on the list. Doing your taxes can be incredibly confusing and stressful. Those who own a home might find it even harder to know exactly what’s what when it comes to homeowner tax deductions. In a lot of cases, it’s smart to leave it to a professional. On the other hand, if your tax information is pretty straightforward, most homeowners find themselves comfortable with e-filing. But whether you do your own taxes or take them down to your local preparer, it’s important to be armed with the right information. With that in mind, here are a few things we think all homeowners should know this tax season.
1. You can only deduct the actual amount of property taxes paid, not the total amount you’ve paid your lender. Some homeowners pay their tax bills all at once on their own, but others pay a monthly amount to escrow for property taxes. Sometimes, the amount you’ve paid the lender is more or less than the actual tax bill. Here’s a quick example:
Say your property tax bill is $3,400, but your lender has collected $3,600 from you this year. You may only deduct the amount paid toward the bill by your lender, which is $3,400. That extra $200 you paid your lender will either be applied toward next year’s taxes or sent you a refund.
2. You may deduct points paid to refinance your mortgage… BUT you must spread the deduction out over the life of your loan. Though you may deduct the total points paid to secure your mortgage in the year you bought your home, the same is not true for a refinance. For example, if you paid $3,000 to refinance a 15-year mortgage, you must spread that out over the 15 years. So your yearly deduction would be $200.
3. There is an easier option for home office deduction. Good news for those who claim deductions for home office space! In the past, the guidelines for this type of deduction were somewhat involved. For the 2013 tax year, there is a new option that makes home office deduction much simpler. Instead of having to figure the actual expense of operating a home office, you can now claim $5 per square foot of office space for up to 300 square feet. What has not changed is the definition of a home office. The room or area still must be used exclusively for business purposes on a regular basis.
4. You can receive a tax credit for having an energy-efficient home. If you have made upgrades to make your house more energy-efficient, you may be eligible for a tax credit of up to 10% of the amount you spent to upgrade. The cap for this credit is $500, but the added benefit is the amount you’ll be saving on energy bills!
5. Not every home repair counts as a tax deduction. Of course it’s always best to check with a tax professional on this one, but there are typically only two ways you can claim repairs. The first is if your home is used for a business. If repairs were done to your home office, you may deduct those. If a repair was done to the entire house (such as painting or adding a new roof), then you may deduct a percentage. So if your office takes up 10% of your house, you can deduct 10% of the repair. The second reason to claim repairs is when they are made due to casualty losses. That includes losses retained after federally declared disasters and other major damage. This is a complex process, however, and our advice is to consult a professional.
Above all, it is extremely important that you keep your records organized and accessible! Having everything organized and in one place will make tax season much more bearable. We hope you’ve learned something new from our tax season tips. If you think we’ve left out an important tip, feel free to add it in the comments section below.
