Whether you use an accountant or software like TurboTax to prepare your annual taxes, these helpful guides to taxes for homeowners will ensure you get some sweet home tax benefits
We often have clients ask us about our favorite resources and go-to guides for home ownership. One of our favorite websites for helpful home information is HouseLogic.com, a website from the NATIONAL ASSOCIATION OF REALTORS® , to help you become the best, most responsible homeowner you aspire to be.
Now that tax time is upon us, HouseLogic has released several helpful guides to taxes for homeowners.
- What You Should Know About Your Home and Your 2013 Taxes
- 9 Easy Mistakes Homeowners Make on Their Taxes
- How to Claim Your Energy Tax Credits
- If You Work from Home, Your Taxes Just Got Easier
Whether they are tax credits or deductions, make sure you capitalize on these strategies to lower your tax bill! After all, owning a home can pay off at tax time.
The Sotheby’s International Realty Leadership team on stage at our 2012 Leadership Conference in Chicago, where we were able to network with some of the world’s most talented real estate professionals.
NASHVILLE, Tennessee (Sept. 17, 2012) – The Lipman Group Sotheby’s International Realty, a luxury real estate firm based in Nashville, TN, recently participated in the 2012 Sotheby’s International Realty® Leadership Forum, which brought together more than 220 network members worldwide.
This dynamic, three-day event, which was held Sept. 10 to 12 at The InterContinental Chicago Magnificent Mile in Chicago, provided a unique opportunity for Sotheby’s International Realty brokers, owners and managers to network and share best practices.
“The annual Leadership Forum provides a great value to our firm,” said Larry Lipman, Owner and Managing Broker. “It offered the opportunity to network with some of the world’s most talented real estate professionals and learn more about the industry and the Sotheby’s International Realty brand’s vision for the future.”
The Lipman Group Sotheby’s International Realty, whose office is in Green Hills on Richard Jones Road, offers exclusive Sotheby’s International Realty marketing, advertising and referral services designed to attract well-qualified buyers to the firm’s property listings. In addition, the firm and its clients benefit from an association with the Sotheby’s auction house, which promotes real estate referral opportunities with auction house clientele.
The annual Leadership Forum provides a great value to our firm and we enjoyed our time spent in the Windy City. We captured this peaceful view of the boats on Lake Michigan!
As a Sotheby’s International Realty affiliate, the firm also has the unique ability to refer its real estate clientele to the auction house for jewelry, art, unique furniture and collectible appraisal services. Property listings from The Lipman Group Sotheby’s International Realty also are marketed on the sothebysrealty.com global website, as well as on the firm’s local website, thelipmangroup.com.
“The Leadership Forum brings together our network members from all over the world with the common goal of sharing their own unique experiences,” said Michael R. Good, chief executive officer, Sotheby’s International Realty Affiliates LLC. “This year’s conference provided attendees with an overview of the exciting results of the brand’s exclusive global marketing relationships, highlighted the power of the network as evidenced by its strong referral system and offered presentations from owners and operators worldwide on how to create stronger company cultures with the ultimate goal of building organizations with the highest level of quality service available. The event also provided insights from some of our most successful owners into recruiting strategies, growing through mergers and acquisitions and leveraging the unique relationship with the Sotheby’s Auction House.”
The Lipman Group Sotheby’s International Realty is located at 2002 Richard Jones Road, Suite C-104. For additional information, please contact 615.463.3333. The Sotheby’s International Realty network currently has more than 12,000 sales associates located in approximately 625 offices in 44 countries and territories worldwide.
Whether you bought, sold or just happily lived in your home this year, we’ll walk you through all the tax stuff you need to know.
Just skim the “If you …” headers to find the sections that affect you.
The Nuts and Bolts
If You Paid Interest on Your Mortgage …
You should have received a form 1098 from your lender, which will tell you how much mortgage interest you paid. You can deduct 100% of your mortgage interest and property taxes, as long as your loan is less than $1 million, ($500,000 if you are married and filing separately). If it’s over that, the IRS will limit your deduction. But here’s the catch: You have to itemize in order to claim the deduction. This is a choice that takes a little math and thought. But basically, you calculate your total itemized deduction, compare it against the standard deduction and then take the higher deduction.
You can also deduct late payment charges (please don’t consider this an incentive to pay late) and pre-payment penalties.
If You Paid Property Tax … (Hint: You Did)
The property tax you pay each year is deductible. Usually these property taxes are paid as part of your monthly loan payments, so you can find that information on the annual statement from your lender. Real estate taxes can be deducted on federal returns even though they may not be deductible in the state where the property is situated.
If You Had a Loan Forgiven …
Depending on the time of debt, if a lender canceled it, you could be taxed as though that canceled debt were income. For example, if you had a mortgage of $10,000, paid $2,000 and the bank canceled the rest, you would be taxed as though you had $8,000 of income.
However, thanks to the Mortgage Debt Forgiveness Relief Act of 2007, the IRS will not charge income tax on a canceled debt. That means if you got a loan modification, short sale or foreclosure on your primary residence, you won’t be hit with a tax bill for it. This applies to up to $2 million in debt ($1 million if you are married, filing separately), that you took on to:
- Buy your primary home
- Improve your primary home
- Refinance the loan for your primary home
This will only be in effect through 2012, so if you are considering a loan modification or other cancellation of debt, try to fit it in this year if possible.
If You Made Energy-Efficiency Improvements to Your Home …
The Nonbusiness Energy Property Credit is for homeowners who made energy-efficient improvements such as installing insulation, new windows or furnaces. For 2011, you can get a credit worth 10% of the cost of the qualified efficiency improvements you made. You can claim up to $500 over your lifetime.
What if your electricity comes from your own green sources? You should check out the Residential Energy Efficient Property Credit. This credit gives homeowners 30% of what they spend on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines and fuel cell property. No cap exists on the amount of credit, except for fuel cell property.
If in this coming year you decide you want to go green for your home, the IRS suggests that you check for a certification statement that the item is eligible for a tax credit before you purchase. This can normally be found on the packaging or the company’s website. Full details are available on Form 5695.
If Your Home Was Damaged in a Disaster …
If your home was damaged by a disaster like a tornado or fire, you might be able deduct the amount that wasn’t reimbursed by insurance. To do so, you need to know your AGI. Then multiply that by 10%, and subtract that and $100 from the amount of damage not reimbursed.
Example: Let’s say your home sustained $20,000 in hurricane damage, but you were only reimbursed $10,000 by your insurance company. $20,000-$10,000 = $10,000 in unreimbursed damage. Your AGI is $70,000, so $70,000 x 10% = $7,000. $10,000 – $7,100 = $2,900 in deductible damage.
Special Note: Should You Take the Home Office Deduction?
Provided you are actually eligible for the home office deduction (learn more so you don’t get audited), deducting the expense could either be a smart decision or a poor one. That’s because once you claim that home office, it doesn’t count as part of your private residence anymore. When you sell your house sometime down the line, you’ll either make a profit or a loss. If you make a profit, the value of your home office will be taxed as a capital gain, at a maximum rate of 25%, costing you money. If you make a loss selling your home, you can deduct the value of the home office as a loss, making you money.
How the math works out for your depends on your situation, so it’s smart to talk to your tax preparer before you deduct your home office.
If You Took Out a Loan …
If You Paid Closing Costs …
Any origination fees that you paid your mortgage lender at closing are deductible, even if your lender paid the closing costs. You can find the exact figures on your HUD-1 settlement statement, which you received from your escrow provider or title attorney at or just after closing. If you can’t seem to find it, contact your real estate agent or mortgage broker to request it.
If You Paid Property Taxes … (Hint: You Probably Did)
Like we explained above, usually your property taxes are paid to your lender as part of your loan. But if you bought your house this year, you probably paid your fair share of the property taxes upfront. You can find out how much you paid on your settlement documents, and deduct it.
If You Paid Mortgage Discount Points …
When you pay a “point” toward your mortgage, that means you paid the equivalent of 1 percentage point of your loan upfront at closing in order to get a lower interest rate. This doesn’t go to pay off your loan, but it can save you money in the long run, which is why people do it. If you paid mortgage points, you can deduct them if:
- The loan is secured by your primary residence
- The loan was used to buy, improve or build the home
- Paying points is a common practice in the geographic area of your new home
- The points are calculated as a percentage of the loan principal
- The points are clearly outlined on the buyer’s settlement statement, and
- The amount of cash you put into the purchase of your home (including down payment, closing costs, etc.) is at least equal to the amount you were charged for the points you paid on the loan
If you paid points to refinance your home instead of buying or improving your home, you deduct a portion of what you paid each year, spread out over the life of the loan. For example, if you paid 1,000 in points to refinance a 10-year loan, then you could deduct $100 each year.
If You Took Out a Personal Home Equity Loan …
What if you took out a home equity loan to pay for something other than your home, like tuition or home improvements? Well, it depends. Part or all of the interest you pay on that loan could be deductible for up to $100,000, or $50,000 if you are married filing separately. Here’s how the math works when it comes to tuition:
Let’s say your home is worth $200,000. You currently have a mortgage worth $150,000. So your home is worth $50,000 more than the mortgage. If you take out a home equity loan to pay for tuition, then you can only deduct the interest on $50,000 of that loan. That number would be the same whether you took a loan out for $60,000 or $200,000—you can only deduct interest on $50,000 of that loan.
If you find yourself getting hit with the alternative minimum tax (AMT), then you cannot deduct any portion of the interest on a home equity loan when calculating AMT.
However, if you used that $60,000 loan to build a shed and install a pool, you can deduct all of the interest whether or not you fall under the AMT. That’s because you used the loan to improve your property.
If You Sold a Home …
If You Made a Profit on Your Home …
If you sold your house for more than you paid, you technically made what is called a “capital gain.” Usually capital gains are taxed, but the gain you made on your home—up to $250,000 ($500,00 for married couples filing jointly)—is exempt from income taxes. You just need to have:
- Owned the property for two years, and
- Lived in it for two out of the last five years before you sold it
If you don’t meet these requirements, all is not lost. If you had to sell your home because of:
- Divorce or legal separation
- Job loss that qualifies for unemployment compensation
- Employment changes that made it difficult for you to meet mortgage and basic living expenses
- Multiple births from the same pregnancy
- Damage from a natural or man-made disaster
- “Involuntary conversion” by a local government under eminent domain law, for example …
Then the IRS will cut you some slack and only tax your gain partially. Learn more at the IRS website.
Also, if the gain you made is more than $250,000 (or $500,000 if you’re married filing jointly), dig around and see if you can find the receipts for any home improvements you made. That will establish the cost basis for the home as higher. For example, if you bought your home for $300,000 and made $50,000 in improvements, then sold it for $600,000, you can deduct that entire amount ($600,000-$350,000 = $250,000). If you hadn’t included those improvements, you would have been taxed on that extra $50,000 that exceeded the limit.
More on Taxes From LearnVest
Learn how to file your tax return.
If you need more time to file your taxes, you can ask for an extension. Here’s how.
This post originally appeared on LearnVest.com on Feb. 15, 2012 and was written by Alden Wicker. Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of The Lipman Group Sotheby’s International Realty.
Warren Buffet is seen by many as the greatest investor of our time. When he speaks, people listen. Like anyone else in his position of influence, he is criticized by some for using his bullhorn to promote his own business agendas at times. That makes it very interesting when we occasionally learn of how he privately advises those closest to him.
Such a situation occurred this week. Debbie Bosanek, Warren Buffet’s secretary of 37 years, recently purchased a second home in Surprise, Arizona.
In an article in the Omaha World Herald, Mrs. Bosanek discussed her reasons for purchasing a second home and the personal advice she received from Mr. Buffet.
“I just thought it was time to buy a home. Warren tells me that it will be the best opportunity in my lifetime. Mortgage rates are low and prices have dropped dramatically…I share Warren’s view about the future of America, and we believe that our country will do just fine. I’m happy to make this investment.”
The greatest investor of the last century privately has told the people closest to him that buying a home right now “will be the best opportunity in [their] lifetime”.
That’s good enough for us. How about you?