It’s tax time – oh boy! Tax deductions are a great perk for homeowners and your finances. It’s my pleasure to help you with real estate in the Greater Columbia area in all ways - even when it comes to tax time! In figuring your 2015 tax deductions, keep in mind:
1. Don’t Miss the Mortgage Interest Deduction
If you are a first time home buyer, you may be used to claiming the standard deduction but, now that you are paying mortgage interest, you now may want to consider itemized filing.
You can deduct the interest portion of your mortgage payments. That might mean your itemized deductions will now exceed the standard, saving you tax dollars. The savings are at their maximum early on, when most of your mortgage payments go to interest.
2. Don’t Assume that Everything House-Related is Deductible
You can’t write everything off on your taxes and expect that the IRS won’t catch on; you don’t want to over-deduct. Generally, mortgage interest and real estate taxes are deductible. Also, you will be able to deduct points charged on the mortgage in the year you purchased the home. Your tax prepare will be able to help.
3. Don’t Neglect to Claim Your Home Office
Many people fail to take the home office deduction. To qualify for the deduction, your office space must be used regularly and only for business. If you work for someone else, there has to be documentation — it could be an email from a supervisor — that your work at home is required as part of the job and is for the employer’s convenience. In addition, employees can’t take the deduction if they rent any part of their home to their employers and use the rented portion to perform work for the employer.
If your use is legitimate, you can deduct a proportionate amount of a number of expenses, including insurance, repairs, utilities, services, and depreciation, which can really add up. The simplest method of figuring is by multiplying the square footage of the office by $5 for your total deduction. If the home office is your base of business, you may get additional deductions from your business income, such as mileage for driving to and from your clients’ locations because now it’s considered a business expense rather than commuting.
4. Be Sure to Understand Rental Income
Renting out a room or wing of your house is a great way to make extra income. It can also have several important tax implications. When renting out a room in your personal residence, you can only deduct mortgage interest and real estate taxes for the portion of the house that isn’t rented. So, if you have a 2,000-square-foot house and rent out a room of 100 square feet, you can deduct 95% of the mortgage interest and taxes. However, because the rented space is now converted to investment property, you can also take deductions on your rental expenses. Some examples are the rental area’s portion of overall maintenance and utilities, again calculated by the percentage of overall square footage, but you can only claim those rental expenses for the time period you rented the space.
5. If You’re Paying a Relative’s Mortgage
Good on you for helping someone in need by covering their mortgage payment, but be a smart philanthropist but you will not get any deductions for those payments if you directly pay the lender unless you’re listed on the deed. It would be better to make a gift of the money to your parent or other beneficiary and let them be the one to pay the bills — although you won’t get any tax benefit unless you can claim that person as a dependent. Treating a relative who doesn’t live with you as a dependent, means meeting certain requirements. You would need to have a certain type of relationship with the person and the relative must pass a gross income test. Also, there’s a limit on the amount of money you can give someone in a year — $14,000 — without incurring a gift tax. If you exceed the annual total, you may have to pay the tax.
6. Never Challenge Property Tax Bills
For many, local property tax is a big chunk of their paycheck, and sometimes that chunk is bigger than it needs to be. “Values go up and down over time. The assessor reassesses areas of town in bulk from time to time. Often these bulk reassessments result in a valuation 10%, 20%, even 50% more than a home’s value. If your home has recently been accessed, you have fewer than 30 days to challenge the assessment. You’ll want to start by checking the assessment data — size of the lot, number of rooms, bathrooms, etc. Be sure that the facts are correct. Then, work with your real estate pro to get market data, such as info on comparable properties. Then look at local tax records to see if the value of your property seems overly high in comparison to like properties. You could even hire an independent appraiser, although that can run $350 to $600, undercutting the savings you might ultimately receive.
The odds are good enough that appealing usually makes sense. The worst case is the value stays the same.
I hope this is helpful! As always, contact me anytime with any real estate related questions!
Exit Real Estate Consultants
5175 Sunset Boulevard, Suite 3
Lexington, SC 29072
(305)797-7427 (cell – text me!)