Your home is likely your largest asset, and therefore, deserves special attention at tax time. Be sure you’re handling them correctly this year, using these tips!
Deduct from the correct year:
Here, we’re billed in arrears on our taxes, which can be confusing when taking the tax deduction. You’ll want to be sure to enter the amount you actually paid in that tax year, no matter what the date on your tax bill says. Because of this, it can be easy to confuse your payments and actually claim the incorrect amount.
Note: If taxes were paid from your escrow account, do not just deduct the amount escrowed. That’s because sometimes the amount you pay from this account can be a little bit higher or a little bit lower. Your lender will align the two to make sure they end up matching.
For example: Your property taxes were $6,000. Your lender collected $5,800. Or, maybe your lender collected $6,200. You’ll deduct $6,000, the actual taxes paid. This number will be the amount noted on your Form 1098.
Deduct your mortgage interest:
A home mortgage interest deduction allows you, the taxpayers who owns your home, to write off any interest you paid on a loan secured by your home (main home or a second home). The loan may be a mortgage, a line of credit, or a home equity loan. This allows you to reduce your taxable income by the amount of interest paid on the loan.
Note: You must file Form 1040 and itemize deductions on Schedule A (Form 1040), and prove your mortgage is a secured debt on a qualified home in which you own.
Exceptions: You cannot deduct mortgage interest on a mortgage that is over $1,000,000, or you have over $100,000 in home equity debt.
If you’ve refinanced, you’ll be deducting points over the life of your new loan (as opposed to your regular mortgage, where you’ve been deducting points based on what you paid your lender to secure your mortgage over the course of your loan’s life – 15 years, 30 years…)
For example: Let’s say you paid $3,000 in points for a refinance of 30 years. You’ll divide 3,000 by 30 and pay $100 a year.
If you made any energy improvements, such as installing solar electric, solar water heater, geothermal, any energy-efficient systems…you may be able to take a 10% tax credit up to a certain dollar amount. However, these are one-time credits. If you claimed your new energy-efficient windows last year, you can’t do it again.
Note: See Form 5695, Residential Energy Credits
Don’t forget to:
- Keep track of your home-related expenses.
- Track your capital gains (If you sold your main home last year, you’ll have to pay capital gains taxes on your profit from that sale). Keep your receipts as long as you own the property plus three years.
- Deduct your home office (If you’re eligible, you can deduct $5 per sq. ft. up to 300 feet, or up to $1,500 a year).
- Keep your mortgage payoff statements forever. You never know when you may need that proof.
- Keep your appraisal or valuation used to calculate depreciation as long as you’re the owner plus three years.
- Keep your property tax payment, year-end mortgage statement, PMI payment, and energy tax credit receipt for three years after the due date of the return showing the deduction.