March 13th, 2015
Did you do any home improvements last year? If so, did you know you can deduct the sales tax? And if you took out a home loan for it, you might be able to deduct the interest.
That’s just one of the twenty one most overlooked tax deductions that Kiplinger reported on recently, and some others we’ve found for you specifically for homeowners.
If you think the deduction for state sales taxes expired in 2011, you’re right. But a bill approved this past Jan. 1 restored it, and the restoration is retroactive. Review the IRS restrictions, but don’t overlook deducting big-ticket purchases, including major home improvements.
You may want to talk to a professional about this one since it can get complicated. When you refinance a loan for the first time, the points are deductible, with a caveat: You can’t deduct them all at once, as you can with an initial home purchase. Rather, your tax-deductible points must be spread out over the life of the loan. (And if you just bought a home this year, don’t forget to deduct those points!)
But here’s the important tip: When you refinance again, you’re essentially ending the prior loan, and you can deduct the rest of the points from that transaction with one exception. (You knew there had to be a catch) If you re-refinance with the same lender, then you roll those as-yet-undeducted points into any new points and spread it out the total over the loan term.
Tax credits for some energy-efficient home improvements officially expired at the end of 2011, but like the sales tax, Congress recently revived them, retroactive to 2012. The maximum credit for 2012 is $500 of which only $200 can go towards windows. And that $500 is the maximum you can claim on all of your tax returns from 2006 through 2013.
The good news is that there is no limit for a different credit for homeowners who installed qualified alternative energy equipment like geothermal heat pumps, solar hot water heaters, etc. That credit can be 30% of the total cost including labor and is valid through 2016.
A tax break that allowed business owners to write off 100% of the cost of qualified assets placed into service expired in 2011. Congress didn’t extend it retroactively, but it came back as a break to write off 50% of the cost of a qualified asset for purchases in 2012.
You can find this in your closing statement. If you have any questions, contact your loan officer. You will have to use Schedule A and itemize.
You can deduct your state and local property taxes for the assessed value of the real property unless your money is being held in escrow for the purpose of paying the taxes.
You can deduct simple expenses that you incurred selling a home in the past year including repairs, advertising expenses, title insurance, and broker’s fees. The repairs can only be deducted if they were made because you intended to sell.
If you had PMI (private mortgage insurance) for your primary residence, you might be able to deduct the cost of the premiums. This deduction also includes a second home if it’s not a rental property.
However, it phases out once your adjusted gross income reaches $100,000. You can only deduct the premiums paid for the current tax year. And there are some other rules and regulations if your mortgage is provided for by the Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service. Contact a licensed tax professional to find out what you are eligible for.
If you took out a loan specifically to improve your home, you can deduct the interest because it’s considered a “capital improvement”. However, it has to specifically improve and increase the value of the home. So new paint or carpeting doesn’t count, but adding on a new bathroom or a roof might.
Let’s say you’re finally ready to build your dream home on the property you’ve owned for awhile. You may qualify to deduct the interest. The IRS has quite a number of regulations on this including that it will be used for personal purposes.
Remember, everyone’s situation is different. Contact a licensed professional to review your particular situation. If you need to, talk to them after April 15th and file an amended return.
Will you be getting money back this year? If you are, will you use it for a vacation or put it into savings?