By Keith Loria
With tax season in full swing and the dreaded April deadline right around the corner, there are a number of important things that those who were on either side of a home transaction last year should keep in mind when it comes to filing this year’s taxes.
A look at the Internal Revenue Service’s tax tips page shows that if you have a gain from the sale of your main home, you may qualify to exclude all or part of that gain from your income.
The IRS explains that if you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
Real estate broker’s commissions, title insurance, legal fees, advertising costs, administrative costs, and inspection fees are all considered selling costs and may be used to reduce one’s taxable capital gain by the amount of the selling costs, which could result in a big savings depending on the final sale price.
When it comes to interest paid on a mortgage, much of that is tax deductible. A married couple filing jointly can deduct all of their interest on a maximum of $1 million in mortgage debt secured by a first or second home.
Buyers may also be able to deduct some of the interest they paid on a home equity loan or similar line of credit.
One deduction that most buyers tend to forget about deals with points or origination fees on a home loan, which are paid during the purchase of a home and are generally tax deductible in full for the year that they were paid.
Refinanced mortgage points are also deductible, but only over the life of the loan, not all at once. Homeowners who refinance can immediately write off the balance of the old points and begin to amortize the new.
If your lender required private mortgage insurance, the PMI premiums are tax-deductible for mortgages taken out between 2008 and 2011.
Making home improvements to the home prior to the sale or once one moves in might qualify for an interest deduction on your home improvement loan. Qualifying capital improvements are those that increase your home’s value, prolong its life, or adapt it to new uses, such as adding a porch or installing energy-efficient windows.
Many times during a sale, the seller will send the local tax collector’s office a check for real estate taxes prior to the closing. In many circumstances, however, the buyer will pay a pro-rated portion of the taxes for the year at closing. This tax deduction is one that is also quite often forgotten.
For those working from their new home, if a room is used exclusively for business purposes, you may be able to deduct home costs related to that portion, such as a percentage of your insurance and repair costs, and depreciation.
In some instances, if you have moved because of a new job, moving costs may be deducted. These can include travel or transportation costs, expenses for lodging, and fees for storing your household goods.
For those that took advantage of the first-time homebuyer credit, if within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit.
Every year the tax laws change and certain tax deductions become available while others phase out. If you have recently bought or sold a home, it’s probably a good idea to seek out a professional tax consultant to do your taxes, as missing deductions that you can legally claim can add up to quite a bit of money.
For more information about tax deductions, contact our office today