you can fill out on your tax forms to save yourself money. Today, we will talk about tax benefits for homeowners — a fortunate group of Americans.
DEDUCT YOUR MORTGAGE INTEREST
Homeowners are able to deduct all of the interest they pay on mortgage balances of $1 million or less — $500,000 if married filing separately. Tax director John Battaglia of Deloitte & Touche’s Private Client Advisors Group pointed out that if you’re in the 30-percent tax bracket and can afford $1,000 a month for your home before you take mortgage interest into account, that amount is actually $1,240 after taxes. If you figure $800 of that $1,000 payment is mortgage interest, as it can be in the early years of your mortgage, you’ll get 30 percent of that $800 back from the IRS (or $240). And so, a new homeowner can actually afford a $1,240 payment.
HOME OFFICE DEDUCTION OPPORTUNITIES
If you have your own business and run it regularly and exclusively from your home, you can deduct a variety of home office costs. Deductible expenses can include utilities, supplies, repairs, maintenance and other upkeep-related expenses. New furniture or equipment for the office is deductible for that tax year if they are physically installed (not just purchased) by Dec. 31. These deductions can all be taken on IRS Schedule C.
DEDUCT HOME EQUITY LOAN INTEREST
The amount of interest you pay on a home equity loan up to $100,000 is always deductible. “It doesn’t matter what you spend that loan on,” Battaglia said. “You can go out and borrow $100,000 against your home, spend it on anything — go on vacation — you can deduct the full amount of interest you pay on that loan.”
REFINANCE POINTS OFFER TAX CREDITS
“When you refinance, you may end up paying a mortgage point — that amount is fully deductible, spread out over the life of the loan,” said tax agent Tony Bardi.
“Points” are blocks of the mortgage interest that are paid up front rather than over the life of the loan. Lenders might offer points in exchange for a lower interest rate. If you previously refinanced your mortgage and were deducting points over the life of the loan, you can deduct the remaining amount in the year you refinanced again.
PREPAY YOUR JANUARY MORTGAGE INSTALLMENT
“If my clients are looking to get a little extra deduction, I tell them to pay their January mortgage installment in early December, so that it’s credited by Dec. 31,” Bardi said. “That way they can deduct the interest on that payment as well.”
Beyond writing a check, the payment needs to be processed by Dec. 31 to make the deduction valid. Confirm with your lender on the date they’ll need to receive your check in order for them to process it by the end of the year.
HAVE YOUR PROPERTY TAX PAYMENT PROCESSED BY DEC. 31
Sure, the second installment of your property taxes is not due until February, but if the state has processed both property tax payments before the end of the year, then you can deduct both payments on your tax form.
AVOID CAPITAL GAINS TAXES WITH A 1031 EXCHANGE
This rule does not apply to your primary residence, but if you own business and or investment properties, you’re probably aware of IRS Code 1031. Known as a 1031 exchange, you can trade “like kind” properties, which may have different revenue streams, and defer the taxes. For example, if you have a rental property worth $500,000 and yielding $37,845 a year in income, and want to cash out on the equity and exchange it for another income property of equal or greater value, you can do so without paying capital gains tax, even if it yields a higher revenue stream.
Be sure to talk to your accountant to see which benefits are right for you.
* Jodi Summers’ column Days on the Market runs every Wednesday in the Santa Monica Daily Press.