Louisville Kentucky Homes & Taxes: '9 Easy Mistakes Homeowners Make on Their Taxes'

Louisville Kentucky Homes & Taxes...       

"9 Easy Mistakes Homeowners Make on Their Taxes

By: G. M. Filisko        

Published: January 30, 2014

Don’t rouse the IRS or pay more taxes than necessary — know  the score on each home tax deduction and credit.

Sin #1: Deducting the wrong year for property taxes

You take a tax deduction for property taxes in the year you (or the holder of  your escrow account) actually paid them. Some taxing authorities work a year  behind — that is, you’re not billed for 2013 property taxes until 2014. But  that’s irrelevant to the feds.
Enter on your federal forms whatever  amount you actually paid in 2013, no matter what the date is on your tax bill.  Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke &  Schindler, has seen home owners confuse payments for different years and claim  the incorrect amount.

Sin #2: Confusing escrow amount for actual taxes paid

If your lender escrows funds to pay your property taxes, don’t just deduct  the amount escrowed, says Bob Meighan, CPA and vice president at TurboTax in San  Diego. The regular amount you pay into your escrow account each month to cover  property taxes is probably a little more or a little less than your property tax  bill. Your lender will adjust the amount every year or so to realign the  two.
For example, your tax bill might be $1,200, but your lender may have  collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200. Your  lender will send you an official statement listing the actual taxes paid. Use  that. Don’t just add up 12 months of escrow property tax payments.

Sin #3: Deducting points paid to refinance

Deduct points you paid your lender to secure your  mortgage in full for the year you bought your home. However, when you  refinance, says Meighan, you must deduct points over the life of your new loan.  If you paid $2,000 in points to refinance into a 15-year mortgage, your tax  deduction is $133 per year.

Sin #4: Misjudging the home office tax  deduction

The deduction is complicated, often doesn’t amount to much of a  deduction,  has to be recaptured if you turn a profit when you sell your  home, and can  pique the IRS’s interest in your return. But there’s good  news – there’s a new  simplified home office deduction option if you don’t want to claim actual costs.  If you’re eligible, you can instead claim $5 per sq. ft. up to 300 feet, or   $1,500.

Sin #5: Failing to repay the first-time home buyer tax  credit

If you used the original home buyer tax credit in 2008, you must repay 1/15th  of the credit over 15 years. If you used the tax credit in 2009 or 2010 and then  sold your house or stopped using it as your primary residence, within 36 months  of the purchase date, you also have to pay back the credit.

The IRS has a tool you can use to help figure out what you owe.

Sin #6: Failing to track home-related expenses

If the IRS comes a-knockin’, don’t be scrambling to compile your records.  Many people forget to track home office and home improvement expenses, says  Meighan. File away documents as you go. For example, save each manufacturer's  certification statement for energy tax credits and lender or government  statements to confirm property taxes paid.

Sin #7: Forgetting to keep track of capital gains

If you sold your main home last year, don’t forget to pay capital gains taxes  on any profit. You can exclude $250,000 (or $500,000 if you’re a married couple)  of any profits from taxes. So if your cost basis for your home is $100,000 (what  you paid for it plus any improvements) and you sold it for $400,000, your  capital gains are $300,000. If you're single, you owe taxes on $50,000 of gains.  However, there are minimum time limits for holding property to take advantage of  the exclusions, and other details. Consult IRS Publication 523.

Sin #8: Filing incorrectly for energy tax credits

If you made any eligible  improvements in 2013, such as installing energy-efficient windows  and doors, you may be able to take a 10% tax credit (up to $500; with some  systems your cap is even lower than $500). But keep in mind, it's a lifetime  credit. If you claimed the credit in any recent years, you're done. Fill out  Form 5695.

The first part of the form, which covers systems eligible for a larger tax  credit through 2016, such as geothermal heat pumps, can be complex and involves  crosschecking with half a dozen other IRS forms. Read the instructions  carefully.

Sin #9: Claiming too much for the mortgage interest tax  deduction

Taxpayers are allowed to deduct mortgage interest on home acquisition debt up  to $1 million, plus they can also deduct up to $100,000 in home equity debt.

This article was original published in January 2011.

This article provides general information about tax laws and  consequences, but shouldn't be relied upon as tax or legal advice applicable to  particular transactions or circumstances. Consult a tax professional for such  advice.

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