I am sure you have heard the old saying that only 2 things are certain in life: Death and Taxes. But if you buy a home, there are ways to lower your taxes…
I am sure you have heard the old saying that only 2 things are certain in life:
Death and Taxes
It seems that every year my wife starts “reminding” me to do the taxes. She usually starts while taking the Christmas tree down and does not let up until I have filed our tax return. I really hate doing our taxes and would strongly suggest that you get a qualified person to do yours. Especially since I am always filled with fear that I have made an innocent mistake that will cause the IRS to audit us. Maybe you would agree that filing your taxes can be a complicated and confusing process.
If you are a home owner you like me, then you should be aware of the many different home tax deductions and credits that we can use!
Use the Home Office Tax Deduction
Most days I work from my home. I save time and gas by never leaving the home. Plus I can crank up the stereo as loud as I want and never disturb anyone.
If you are like me and work from home, you should be able to deduct a percentage of your housing costs for your home office. However, most people don’t know how to calculate this and don’t realize that it also has to be recaptured when you eventually sell your home. You will only want to claim it if it is worth it, so make sure you know exactly what you can write off.
From the IRS:
If you use part of your home for business, you may be able to deduct expenses for the business use of your home. The home office deduction is available for homeowners and renters, and applies to all types of homes.
Sounds pretty awesome doesn’t it?
Keep Track Of Every Dollar You Spend
Another great way to help you lower your taxes is by keeping track of the money you spend on home maintenance, or repair expenses. Be sure to keep any relevant documents such as receipts. By keeping track of this money, you might be able to reduce the amount you pay on capital gains in the future. Another reason for keeping these records is because if you are audited, you are going to need to prove that the expenses you reported are legit.
Don’t Forget To Pay Capital Gains Tax
If you sold your primary residence this year, then you are going to have to pay capital gains tax on any profit that you have received. Capital gains are the amount that you gained on the property’s value. Here are some of the basics from NAR:
Couples who file a joint federal return can exclude from taxation up to $500,000 of any gain in their home’s value at the time of sale.
Singles can exclude gains of up to $250,000.
If you add up all of your income from every possible source and it is less than $200,000 ($250,000 on a joint tax return), you will not be subject to this tax.
On January 1, 2013, as a result of the American Taxpayer Relief Act of 2012, the so-called “fiscal cliff” bill, the capital gains tax rate increased to 20% for those whose taxable income exceeds the threshold of $400,000 for single individuals or $450,000 for married couples. Under those thresholds the tax rate remains the same at 15%.
Again, I would strongly suggest talking to a tax professional since the laws/rules change all the time. What you pay a qualified tax professional is much less than the amount of money they are going to save you on your taxes!
One mistake that many people make is using the wrong year when entering the property taxes. You need to make sure you use the right tax deduction for your property taxes in the year that you have actually paid them. Don’t let the date on your property taxes bill confuse you. When you are doing your taxes make sure you enter the amount that you paid in that calendar year. Sounds like a simple mistake but it is common.
The Take Away:
Hey nobody likes paying taxes.
But it is just one of the 2 things we are certain about in life…
I mentioned just a few of the ways that homeowners can avoid the common mistakes that happen when filing their taxes. If you avoid making these mistakes, it should help you pay the right amount and avoid any hassle from the IRS.
Plus, these are just a few of the many many different deductions that you can use when you own a house. What are the other deductions? Well since I am a REALTOR and not a tax professional, let me say this one more time:
Please use a qualified, licensed tax professional to maximize your real estate deductions!