Congratulations, homeowner! In addition to the pride of owning your own property, there are many subsidiary benefits, including TAX benefits. With April 15th fast approaching, let’s take a look at some of these. You want to be sure that you don’t miss any of them if they apply to you.
One huge benefit is the mortgage interest deduction. Basically, the interest you pay on your mortgage is fully deductible from your taxes. In the first years of your mortgage, most of what you are paying is interest, so this benefit can be huge! Your mortgage company will send you a statement showing the exact amount you paid in nterest in 2013, and you can use this information to save a bundle on your taxes.
And, if you purchased your home this year, your closing costs may also be tax deductible – even if all or a portion of them were paid by the seller. As with all of these deductions, be sure to consult your tax professional about the proper way to claim the benefit and the appropriate amount.
Here are some smaller, but still significant tax savings that are good for your 2013 taxes but which may *not* be available in 2014 (unless Congress decides to extend them), so be sure to take advantage of them this tax season if at all possible.
- Energy-Efficiency Upgrades. This is a tax credit, which reduces what you owe dollar for dollar. The types of upgrades that meet the criteria include new exterior windows, insulation, exterior doors, and roofing. The tax credit is capped at $500 (less in some cases), but you’re likely to save even more in the long run – by having lower utility bills.
- Debt Forgiveness. If you sold your home in a short sale or foreclosure last year, your lender likely forgave at least a portion of your mortgage debt. The Mortgage Debt Forgiveness Act will save you from having to pay taxes on at least some of the debt forgiveness. (Without the Act, the debt forgiveness would count as income).
- PMI Deduction. Private mortgage insurance, or PMI, is sometimes required by lenders for homebuyers who make a down payment of less than 20 percent. PMI protects the lender in the event the borrower stops paying on the loan. PMI premiums were deductible from your taxes in 2012 and 2013.
While Congress has allowed the above deductions to expire for 2014, and must reinstate them if they are to apply in the future, the capital gain deduction stands. Homeowners who have owned and occupied their homes for at least two of the past five years do not have to pay taxes on the gain. The amount of you can gain (tax-free) from such sales varies, depending on your marital status. Married people can earn up to $500,000 on a sale without paying tax on the earnings, and single people can earn up to $250,000 without paying any federal tax.
One more benefit to mention: the Home Office Deduction has been simplified for 2013. If you have a home office, rather than using a 43-line form (as required in years past), the new method allows home-based workers to simply claim $5 per sq. ft. for up to 300 sq. ft. For example, if your home office is a 10×10 ft. room (100 sq. feet), that’s $500 you can deduct. Keep in mind – the basic requirements for claiming the home office deduction haven’t changed. Your home office still must be used exclusively for business purposes and on a regular basis.
Whether you have a single-family home, townhouse, or condo, there are tax benefits available to you, but it’s tough to take advantage of them if you don’t know all the details. Seek help from a good accountant or tax advisor.
Mary Anne Walser is a licensed attorney and full-time REALTOR, serving buyers and sellers in all areas of Metro Atlanta. Her knowledge of residential real estate and her legal expertise allow her to offer great value to her clients. Mary Anne serves on the Committee that drafts and reviews the contracts utilized by all REALTORS in the State of Georgia. In addition, she is a member of the Atlanta Board of Realtors, the Georgia Association of Realtors, the State Bar of Georgia and the Georgia Association of Women Lawyers. Contact Mary Anne at 404-277-3527, or via email: firstname.lastname@example.org.