Here's an article from HouseLogic about taxes - something we are beginning to think about. Hope you fine these suggestions helpful.
By: G. M. Filisko
Don’t pay more taxes than necessary — know the score on
each home tax deduction and credit.
#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 2011 property taxes until 2012. But that’s irrelevant
to the feds.
Enter on your federal forms whatever amount you actually paid in 2011, 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.
#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.
#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.
#4: Failing
to deduct private mortgage insurance
Lenders require
home buyers with a down payment of less than 20% to purchase private mortgage
insurance (PMI). Avoid the common mistake of forgetting to deduct your PMI
payments. However, note the deduction begins to phase out once your adjusted
gross income reaches $100,000 and disappears entirely when your AGI surpasses
$109,000. Also, unless Congress acts to extend the PMI deduction again, 2011 is
the last tax year for which you can take this deduction.
#5:
Misjudging the home office tax deduction
This deduction
may not be as good as it seems. It's 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. Hampton’s advice: Claim
it only if it’s worth those drawbacks. If so, here's what to know about what
you can write off.
#6: Missing
the first-time home buyer tax credit
While the
original home buyer tax credit deadline passed in April 2010 (and isn’t
available in 2012), military families and some government workers on assignment
outside the U.S. were given an extension until April 30, 2011, to get a home
under contract and take advantage of up to $8,000 in tax credits for first-time
buyers and $6,500 in credits for repeat buyers.
It applies to
any individual (and, if married, the individual’s spouse) who serves on
qualified official extended duty service outside of the United States for at
least 90 days during the period beginning after Dec. 31, 2008, and ending
before May 1, 2010.
#7: 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 maintenance and repair expenses, says
Meighan. File away documents as you go. For example, save each manufacturer's
certification statement for energy tax credits, insurance company statements
for PMI, and lender or government statements to confirm property taxes paid.
#8: 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. However, you can exclude $250,000 (or $500,000 if you’re a married
couple) of any profits from taxes. So if you bought a home for $100,000 and
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.
#9: Filing
incorrectly for energy tax credits
If you made any
eligible improvement, fill out Form 5695. Part I, which covers the 30%/$1,500
credit for such items as insulation and windows, is fairly straightforward. But
Part II, which covers the 30%/no-limit items such as geothermal heat pumps, can
be incredibly complex and involves crosschecking with half a dozen other IRS
forms. Read the instructions carefully.
#10:
Claiming too much for the mortgage interest tax deduction
You can deduct
mortgage interest only up to $1 million of mortgage debt, says Meighan. If you
have $1.2 million in mortgage debt, for example, deduct only the mortgage
interest attributable to the first $1 million.
This article provides general information about tax laws and consequences,
but shouldn't be relied upon by readers as tax or legal advice applicable to
particular transactions or circumstances. Consult a tax professional for such
advice; tax laws may vary by jurisdiction.
