As Tax Time Approaches, Don't Miss Important Deductions from Your Home
By Keith Loria
April 15 will be here before you know it, and for those who have recently purchased or sold a home, there are a number of tax deductions of which you should be aware. One of the best things about owning a home is the fact you can deduct the mortgage loan interest every year on your tax return.
The deduction that most buyers forget about is points. Points on a home loan are tax deductible if they are used to bring down the mortgage interest rate.
“Points or origination fees that were paid during the purchase of a home are generally tax deductible in full for the year that you paid them,” said Manhattan accountant Russell Goldstein. “However, origination charges from the lender that constitute a service fee are not tax deductible.”
Making home improvements to the home prior to the sale or once one moves in might qualify for an interest deduction on your home improvement loan. It must be an improvement that adds value to the home, such as an added room or installing energy-efficient windows.
“The most important tax deductions that a buyer would not want to miss when it comes to home improvement are the most expensive ones that they can legally deduct,” said real estate blogger Bill Gassett. “For example, remodeling a kitchen is not something you would want to forget about.”
Many times during a sale, the seller will send the local tax collector’s office a check for real estate taxes prior to the closing. In many circumstances, however, the buyer will pay a pro-rated portion of the taxes for the year at closing. This tax deduction is one that is forgotten quite often.
Homebuyers can also declare pro-rated mortgage interest.
“When you are buying a home, depending on when in the month the home sale closes, the buyers pay either a small or large amount of pro-rated mortgage interest for the particular month they close,” Goldstein said. “Whether the amount is large or small, a home buyer can write that amount off. The final closing settlement statement will show just how much the buyer is due.”
Home sellers may also be able to deduct advertising costs, legal selling fees, inspections fees and commissions paid to a real estate agent.
Every year, the tax laws change and certain tax deductions become available while others phase out. If you have recently bought or sold a home, it’s probably a good idea to seek out a professional tax consultant to help you with your taxes, experts say.
“The biggest reason it is important to speak with a tax expert is because of the missed deductions and on occasion deducting things that you are not able to claim,” Gassett said. “Missing deductions that you can legally claim can add up to quite a bit of money. The thing is you can continue to make tax mistakes on a yearly basis that over a long period of time could add up to significant money.”
If you need information on tax experts in our area or more information about mortgage deductions or other tax issues, contact us as your area real estate information experts using the Request Info link at the top of this e-newsletter.