As a homeowner, you can reduce the amount of tax you will owe on April 15 if you take some simple steps before the end of the 2013 tax-filing season. It’s important to get your ducks in a row now—if you wait until the new year dawns, you’ll have to wait a full year to take advantage of these potential deductions.
Tax tips for the upcoming tax filing season
1. Increase your mortgage interest deduction. If you make your January 2014 payment in December, Uncle Sam will count the interest you pay toward your 2013 taxes, thereby increasing your 2013 deduction. Each year, continue to prepay your January payment in December to avoid reducing the amount of the next year’s deduction.
Remember that some banks will automatically credit advanced payments to the principal of your mortgage. Check with your bank before prepaying to ensure it will apply the payment to interest, and report the payment correctly to the IRS.
2. Deduct mortgage points at sale. The points paid on the mortgage on your primary home are deductible, but they are amortized over the life of the loan. For example, if you paid points on a 30-year mortgage, every year you can deduct one-thirtieth of the points you paid up front.
In the year that you sell, however, you can accelerate the amortization so that you can deduct the remaining value of the points you paid. If you sold during 2013, be sure your documentation—original mortgage, HUD1 form, and so on—is in order.
3. Assess your property tax payments. The IRS allows homeowners to claim a deduction for state and local property taxes. In most cases, homeowners simply deduct the full amount of a year’s property tax.
When you buy or sell a home during the year, though, special rules apply. These rules, which apply to both the buyer and seller of the home, dictate how you must report and claim a federal income tax deduction for partial-year property tax payments.
If you sell your home, you can deduct a percentage of the property taxes—generally what you would have paid from the start of the tax year to the day you sold the home. A buyer can deduct tax paid from the date of the sale to the end of the year.
4. Close on your refi before the year ends. The points you paid to close on your refinance may be considered tax deductible on your 2013 return. According to the IRS, taxpayers can deduct points for any payments made in the tax year.
If you’re a homeowner who is in the process of (or even considering) refinancing your home, there might still be time to close the deal.
It takes 40 days, on average, for a refi to close, according to Ellie Mae. If your application is within range of that timeline, call your lender right now to see if you can close before New Year’s Eve. If not, be sure to remember to deduct points and interest next year.
5. Remember energy tax credits. Hurry up and install any energy efficient windows, water heaters, air conditioners, heat pumps, and insulation before December 31. On that date, the legislation that gives homeowners a federal tax credit expires.
Many cities and states also offer tax credits to homeowners who make energy-efficient home improvements, such as dual-paned windows, solar-powered systems, and tankless water heaters. You need not have everything installed, but make the purchase before the year ends and let Uncle Sam finance your future energy savings.
If you have any concerns about your taxes and deductions, contact a tax professional. He or she can answer your technical questions and guide you in the right direction.
Steve Cook is executive vice president of Reecon Advisors and covers government and industry news for the Reecon Advisory Report. He is a member of the National Press Club, the Public Relations Society of America, and the National Association of Real Estate Editors, where he served as second vice president. Twice he has been named one of the 100 most influential people in real estate. In addition to serving as managing editor of the Report, Cook provides public relations consulting services to real estate companies, financial services companies, and trade associations, including some of the leading companies in online residential real estate.