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Tax Breaks for Homeowners

Taxes are one of those inevitable things in life, but if you're a homeowner there are some basic tax breaks that you need to be aware of. You can take the standard deduction each year for your home, or you can venture into the world of itemization to see if you fare better that way. If you choose to itemize, you'll have to use Form 1040 Schedule A.

Three things you CAN itemize and deduct directly from your mortgage payment are real estate taxes, mortgage interest, and mortgage insurance premiums. You can also deduct home equity debts up to $100,000.

You CANNOT itemize and deduct any homeowner's insurance or extra money paid toward your principal, so you'll need to look at how your monthly mortgage payment is broken down each month to make sure you are deducting correctly.

You should receive an official letter from your mortgage company this week, if you haven't already, detailing the interest paid in 2014. Keep this for your tax records and use it when you file.

For more information about what you can and cannot deduct, visit the IRS here.

 

The following are 10 tax tips from the IRS that all homeowners should keep in mind when selling a home:

  1. You are usually eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.
  2. If you have gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
  3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
  4. If you can exclude all of the gain, you do not need to report the sale on your tax return.
  5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schdedule D, Capital Gains and Loses.
  6. You cannot deduct a loss from the sale of your main home.
  7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.
  8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
  9. If you received the first-time homebuyer credit and within 36 months of the date of purchase the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year's tax return.
  10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

If all of this makes your head spin, it's totally understandable. I'll be happy to help as much as I can, but you might need to reach out to a Certified Public Accountant (CPA), because they are trained in tax codes. If you need a recommendation, I'd be happy to help!

Jarod
Jarod@realtracs.com
615-669-8265

 

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