If you’re an accountant, you know that tax season has already started. but savvy homeowners are already planning which tax breaks they’ll use on April 15.
Most homeowners know that they can deduct the mortgage and real estate taxes they pay from their federal income tax forms. But there are some other deductions you may be able to take as well.
If you’re looking for a book that provides excellent advice on homeowner tax breaks, Ilyce highly recommends J.K. Lasser’s Homeowner’s Tax Breaks by Gerald Robinson.
If you purchased a home in 2003, you may be able to write off certain expenses related to the purchase.
The fees that lenders charge for putting the loan package together for you are called points. Each point you pay is 1 percent of the loan amount and it’s deductible in the year of purchase. Another deduction would be your share of real estate taxes you paid for the time you lived in your home in the year of purchase. If you purchased your home as the result of a job-related move, your moving expenses should be deductible as well.
In addition to the regular tax breaks for your mortgage and home equity loan interest you pay, you can also get a regular deduction if you have a home office. And the rules for home offices have been loosened a bit over the years.
There are three qualifying business purposes that the IRS looks for when deducting home office expenses. If your home is your principal place of business, is used regularly by customers, patients or clients and if your office is a separate structure on your property, like above the garage, then you will likely meet the IRS test for deductibility. And if you pass that test, then you may be eligible to write off the costs of commuting from your home office to your client’s place of business.
As you probably know, one of the great tax benefits is the ability to take your profits tax-free when you sell your home.
When you sell, you can take up to $250,000 in profits tax free (up to $500,000) if you’re married, as long as you’ve lived in the home two of the last five years. You can only take the exclusion once every 24 months.
But what if you got sick or took a new job and couldn’t live in your home for two years? Let’s say you’re only in your new home for a year, but prices have shot up in value. If you were in the home for only a year, but had to move because you took a new job, you’d be able to take up to half of the total $250,000/$500,000 amount tax free or up to $125,000 to $250,000 in profits tax free when you sell.
The nice thing about being able to take your profits tax free every 24 months is that it eliminates a whole lot of paperwork. You don’t have to worry about your cost basis or the rollover replacement value anymore.
Published: Jan 27, 2004