Attention Homeowners: Here Are Some Tax Tips You Need to Know
It’s tax season and 2013 was a great year for the housing market in many parts of the country. It was so good that nearly half of all homes sold in 2013 were sold above the asking price (49.5%).
What a difference a couple years makes! And if you’re a homeowner, you are also entitled to a few tax breaks. For example, did you know mortgage insurance, not to be mistaken with homeowner’s insurance, is tax deductible? So whether you are a first time homeowner or just need a little refresher course, here are six important tax tips every homeowner should know:
Mortgage interest is the most common deduction among taxpayers. For most homeowners, the bulk of their mortgage payment goes towards interest each month. All that interest is deductible, unless your loan is more than $1.1 million. For home loans in the multimillion-dollar range, the IRS has put limits to the deductible interest.
Mortgage interest deduction even covers multiple loans. If you own a home in California and a summer home in Florida, you can claim the interest on both properties as long as the total is under $1.1 million. In fact, your additional property doesn’t even have to be a house. It could be an RV or boat, as long as it has sleeping, cooking and bathroom facilities.
But there is a small catch. If you are going to claim the mortgage interest on your second property, be sure you vacation there for at least 14 days. If you rent it out, be sure to stay there at least 10% more than the number of days that you do rent it out. If you don’t, and Uncle Sam finds out, the IRS could consider the property a residential rental property and you’ll no longer be able to claim the interest.
If you have private mortgage insurance, than this too is tax deductible. Mortgage insurance and homeowners insurance are two different things. Mortgage insurance, also known as home-loan insurance, is an insurance policy which compensates investors or lenders for losses due to default of a mortgage loan. This insurance is usually required when down payments on a property are below 20%.
Homeowners insurance on the other hand protects your home and belongs against fire, theft, or any other loss stated in your policy. Homeowners insurance in California depends on the sales price of your home. This type of insurance isn’t tax deductible but it’s very important in protecting your property against any losses. Make sure to do your homework and compare home insurance rates when looking for home insurance.
If disaster strikes, such as a hurricane, tornado, earthquake, etc., it’s important to know that you are able to claim a tax break due to any significant losses. Generally, you may deduct casualty and theft losses relating to your home, household items and vehicles. However, it’s important to note that you may not deduct any casualty and theft losses covered by your insurance. It has to be an out-of-pocket loss and it has to be more than 10% of your income.
It Pays to Be Green
2013 is your last chance to claim up to $500 in green energy credits. If you’ve installed energy efficient windows, doors, air conditioners, heaters, or insulation, then you might be able to take advantage of this tax break.
Canceled Mortgage Debt
If you took out a home loan and the lender cancels the debt after losing your home to foreclosure or any other circumstance, make sure that you include the cancelled amount in income when filing your taxes. The lender is required to report the amount of canceled debt to you, to the IRS using the cancellation of Debt form or Form 1099-C. If you fail to report this when filing your taxes, you will later find yourself with hefty fines from the IRS.
Selling Your Home
A lot of homeowners took advantage of the surging housing marking in 2013 by selling their homes. If you sold your main residence, you may qualify to exclude up to $250,000 of that gain from your income. If you file jointly with your spouse, you may qualify for up to $500,000. In order to qualify for the exclusion, you must meet both the new ownership and use test set up by the IRS.
Also, if within the past year you sold a home and incurred title insurance costs, advertising costs or broker fees, then these too can be claimed on your tax return.
Have you sold or bought a home in 2013? What tax breaks are you eligible for? Sound off below.