It’s that time of year again! Time to file your taxes and cross your fingers for extra cash in your pockets, for 2010 there are several tax breaks that homeowners can take advantage of, such as: new homeowner tax credit, non first-time homeowner credit, home energy credits, medical deductions, charitable donations including Haiti relief, qualified job hunting expenses and more. With April around the corner, we wanted to provide you with some answers to frequently asked questions regarding homeowner tax breaks.
I just bought a home; do I file my taxes differently than when I rented?
By buying a home you are now able to itemize your taxes. With this come additional responsibilities for keeping track of your deductible expenses, in addition to filling out a different form. However, itemizing is really only beneficial if you have more than the standard amount of deductions allowed by the government. If you are filing single or married but filing separately, the deduction amount is $5,800, $8,500 for heads of households and $11,600 for married couples who file joint returns. Compare it to the total expenses you can itemize and file using the method that gives you the larger deduction.
What homeowner expenses are deductible?
If you’ve decided to itemize your deductions to get the most money back, then there are a few homeowner expenses that you can deduct. Mortgage interest is a big one. You’ll find when you write the monthly check to pay your mortgage that interest is where the bulk of the money goes. Mortgage interest is usually fully tax-deductible. You can even deduct interest on multiple mortgages, as long as they do not exceed $1 million. Other tax-deductible items include energy efficient improvements to the home, such as water heaters, HVAC units, windows and doors; home offices and some refinance expenses. Visit the IRS website to get specific details about your deductible items when you file.
What’s not tax-deductible?
Don’t get too enthusiastic regarding the amount of tax breaks available to a homeowner; there are some expenses you can’t deduct. Mortgage insurance such as PMI, which is private mortgage insurance required by some lenders when a large enough down payment hasn’t been put down, as well as hazard insurance, like flood insurance, are not tax-deductible. In addition, any homeowner association dues or condo fees are not tax-deductible.
What if I sold my home this year? Do I have to pay extra taxes?
When you sell your home, you can avoid some of the taxes on the profit you make. Up to $250,000 in sales gain ($500,000 for married joint filers) is tax-free as long as you owned the property for two years and lived in it for two of the five years before the sale. If you sell before meeting those requirements, you owe tax on any profit unless you qualify under unforeseen circumstances such as death, divorce, unemployment, and multiple births from same pregnancy. Again, visit the IRS website to get specific details about the taxes associated with a home sale.
Disclaimer: Homes.com is not a tax representative and can only provide general information regarding homeownership tax breaks. We hope you find this information helpful. If you have any specific questions, please contact a local tax professional. Source: Kay Bell; Home Sweet Homeownership Tax Breaks; Bankrate.com; February 2009