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Tax Tips: What You Need To Know if You Bought or Sold a Home Last Year
Updated: Tuesday, March 13, 2012 - 9:58 AM
With tax season in full swing and the dreaded April deadline
right around the corner, there are a number of important things
that those who were on either side of a home transaction last year
should keep in mind when it comes to filing this year's
taxes.
A look at the Internal Revenue Service's tax tips page shows that
if you have a gain from the sale of your main home, you may qualify
to exclude all or part of that gain from your income.
The IRS explains that if you have a gain from the sale of your
main home, you may be able to exclude up to $250,000 of the gain
from your income ($500,000 on a joint return in most cases).
Real estate broker's commissions, title insurance, legal fees,
advertising costs, administrative costs, and inspection fees are
all considered selling costs and may be used to reduce one's
taxable capital gain by the amount of the selling costs, which
could result in a big savings depending on the final sale
price.
When it comes to interest paid on a mortgage, much of that is tax
deductible. A married couple filing jointly can deduct all of their
interest on a maximum of $1 million in mortgage debt secured by a
first or second home.
Buyers may also be able to deduct some of the interest they paid
on a home equity loan or similar line of credit.
One deduction that most buyers tend to forget about deals with
points or origination fees on a home loan, which are paid during
the purchase of a home and are generally tax deductible in full for
the year that they were paid.
Refinanced mortgage points are also deductible, but only over the
life of the loan, not all at once. Homeowners who refinance can
immediately write off the balance of the old points and begin to
amortize the new.
If your lender required private mortgage insurance, the PMI
premiums are tax-deductible for mortgages taken out between 2008
and 2011.
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. Qualifying capital improvements are those that
increase your home's value, prolong its life, or adapt it to new
uses, such as adding a porch or installing energy-efficient
windows.
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 also quite often forgotten.
For those working from their new home, if a room is used
exclusively for business purposes, you may be able to deduct home
costs related to that portion, such as a percentage of your
insurance and repair costs, and depreciation.
In some instances, if you have moved because of a new job, moving
costs may be deducted. These can include travel or transportation
costs, expenses for lodging, and fees for storing your household
goods.
For those that took advantage of the first-time homebuyer credit,
if within 36 months of the date of purchase, the property is no
longer used as your principal residence, you are required to repay
the credit.
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 do your taxes, as missing deductions that you can
legally claim can add up to quite a bit of money.
Cherry Creek Mortgage is not a tax advisor. For more
information about tax deductions, contact your tax professional for
advice.
By Keith Loria (RIS Media)
