9 Easy Mistakes Homeowners Make on their Taxes

Posted By Nigel Horonzy @ Mar 8th 2013 2:30pm In: Taxes

As you calculate your tax returns, consider  each home tax deduction and credit you are — and are not — entitled to. Running  afoul of any of these 9 home-related tax mistakes — which tax pros say are  especially common — can cost you money or draw the IRS to your  doorstep.

Sin #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 2013 property taxes until 2014. But that’s irrelevant  to the feds.
Enter on your federal forms whatever amount you actually  paid in 2013, 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.

Sin #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.

Sin #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.

Sin #4: 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.

Sin #5: Failing to repay the first-time home buyer tax  credit

If you used the original home  buyer tax credit in 2008, you must repay 1/15th of the credit over 15 years.  If you used the tax credit in 2009 or 2010 and then sold your house or stopped  using it as your primary residence, within 36 months of the purchase date, you  also have to pay back the credit.

The IRS has a tool you can use to help figure out what you  owe.

Sin #6: 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 and lender or  government statements to confirm property taxes paid.

Sin #7: 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. You can exclude $250,000 (or $500,000 if you’re a  married couple) of any profits from taxes. So if your cost basis for your home  is $100,000 (what you paid for it plus any improvements) and you 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.

Sin #8: Filing incorrectly for energy  tax credits

If you made any eligible  improvements in 2012 — or will in 2013 — such as installing  energy-efficient windows and doors, you may be able to take a 10% tax credit (up  to $500; with some systems your cap is even lower than $500). But keep in mind,  it’s a lifetime credit. If you claimed the credit in any recent years, you’re  done. Fill out Form 5695.

The first part of the form, which covers systems eligible for a larger tax  credit through 2016, such as geothermal heat pumps, can be complex and involves  crosschecking with half a dozen other IRS forms. Read the instructions  carefully.

Sin #9: 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.


Hope this helps with the next tax year!

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