One of my favorite things to do each year, is to park outside the Post Office on April 15th and watch the parade of cars as last minute procrastinators get in line to post their taxes before the deadline. Miraculously, everyone seems to be in a pretty good mood - after all, we are all in this tax thing together. Jokes and music fill the air, and the more enterprising even form impromptu tailgate parties.
But no one really likes to pay taxes, and if you found yourself reeling from sticker shock when your accountant handed you your 2013 tax bill, maybe it's time to reconsider the tax benefits of owning a home. Here are just the highlights of the major deductions you could have used if you owned, bought or sold a home in 2013.
- Mortgage Loan Interest: Mortgage interest on a maximum of $1 million in mortgage debt secured by a first and/or second home is deductible. For example, if you paid $800 per month in mortgage interest, if you are in the 25% tax bracket, that would have saved you $2400 in your pocket this year.
- Home equity loan interest: Home equity interest is deductible, but limited to the smaller of $100,000 or the total of your home's fair market value.
- Home Improvement Loan Interest: You can deduct all the interest on a home improvement loan provided the work is a "capital improvement" which increases your home's value. So maybe it's time to splurge on that pool you've always wanted! (Homes with swimming pools sell well later, too.)
- Investment Property Write Offs - Almost every expense on an investment property can be deducted, including mortgage interest, property taxes, property insurance, any expenses for repairs or maintenance, and property management expenses.
- Points: Points, each equal to 1 percent of the loan principal, are charged by lenders as part of the cost of the loan. You can fully deduct points associated with a home purchase mortgage. Refinanced mortgage points are deductible too if they are amortized over the life of the loan.
- Property Taxes: Property taxes or real estate taxes are fully deductible. Any local city or state property tax refunds reduces your federal property tax deduction by the same amount.
- Capital Gains Exclusion: Home buying investors' best tax shelter comes from provisions in the Taxpayer Relief Act of 1997 which allows married taxpayers who file jointly to keep, tax free, up to $500,000 in profit on the sale of a home used as a principal residence for two of the prior five years.
- Home-Based Business Deduction: Home offices that use a portion of your home exclusively for business could qualify you to deduct a percentage of costs related to that portion. Included are a percentage of your insurance and repair costs, utility bills and depreciation.
- Selling Costs and Capital Improvements: When you sell your home, you can reduce your taxable capital gain by the amount of your selling costs, which include real estate commissions, title insurance, legal fees, advertising and inspection fees. Also any capital improvements that were done within 90 days of the sale to help make the home sell better, like painting, can be deducted.
- Moving Costs: A move triggered by a new job comes with some deductible moving costs. To qualify, you must meet certain requirements including: moving within one year of starting your new job, moving 50 miles farther from your old home than your old job was and working full-time at the new job for 39 of 52 weeks following the move.
- Mortgage Tax Credit: Mortgage Credit Certificates (MCCs) allow qualifying low-income, first-time home buyers to take a mortgage interest tax credit of up to 20 percent (the amount varies by jurisdiction) of the mortgage interest payments made on a home.
So maybe next year, if you take advantage of buying a home in Las Vegas, you might want to file a little earlier so you can get back a tax refund check instead of owing money! And instead of being in line on April 15th, you can join me on the sidelines at the Post Office and enjoy the show.
Team Leader, The Tonnesen Team
Berkshire Hathaway HomeServices, Nevada
3185 St Rose Pkwy #100 Henderson, NV 89052
With over 30 years of experience helping families call Las Vegas "home!"