Tax advantages of owning a Dana Point home are probably not the number one motivating force behind buying a home. But the tax advantages associated with owning your own home are significant, and may be a factor in your decision to buy a home.
Mortgage Interest Deduction
If you itemize deductions you’re generally able to deduct the interest you pay on debt resulting from a loan used to buy, build, or improve your principal residence, provided that the loan is secured by your Dana Point home.
The ability to deduct mortgage interest also generally applies to second homes, though special rules apply if you rent the home out for part of the year. Interest you pay on up to $1 million in mortgage debt ($500,000 if you’re married and file a separate federal income tax return) can qualify for the deduction (different rules may apply if you incurred the debt prior to October 14, 1987).
Interest on qualifying home equity debt of up to $100,000 ($50,000 for married individuals filing separately) is generally deductible regardless of how the loan proceeds are used. If you’re subject to the alternative minimum tax (AMT), the AMT calculation doesn’t allow a deduction for interest on debt that’s not used to buy, build, or improve your Dana Point home.
Qualified mortgage insurance premium payments made prior to 2012 can be deducted in the same manner as qualified mortgage interest, provided the mortgage insurance contract is issued after 2006. Congress is debating this tax deductible interest subject, and have been for several years. Each year, the possibility of this valuable deduction evaporating becomes more and more possible.
Could the mortgage interest deduction ultimately be eliminated? That seems unlikely, but elimination or reduction of the deduction has remained part of the ongoing debate, and was included among the recommendations contained in the National Commission on Fiscal Responsibility and Reform’s December 2010 report.
Deduction for Property Taxes
If you itemize deductions, in most cases, you can deduct the real estate taxes you pay on your Dana Point home in the year you pay them to the taxing authority. If you pay your real estate taxes through an escrow account, you can only deduct the real estate taxes actually paid by your lender from the escrow account during the year. For purposes of calculating the AMT, however, no deduction for state and local taxes, including any real estate tax, is allowed.
Capital Gains on Your Dana Point Home
If you sell your Dana Point home at a gain, you may be able to exclude some or all of the gain from federal income tax. For the most part, capital gain (or loss) on the sale of your principal residence equals the sale price of the home less your adjusted basis in the property. Your adjusted basis is the cost of the property (i.e., what you paid for it), plus amounts paid for capital improvements, less any depreciation and casualty losses claimed for tax purposes.
If you meet all requirements, you can exclude from federal income tax up to $250,000 ($500,000 if you’re married and file a joint federal income tax return) of any capital gain that results from the sale of your Dana Point home. This exclusion can be used only once every two years. To qualify for the exclusion, you must have owned and used the home as your principal residence for a total of two out of the five years before the sale. If you fail the two-out-of-five-year test, you might still be able to exclude part of your gain if your Dana Point home sale is due to a change in place of employment, health reasons, or certain other unforeseen circumstances.
Special rules apply in a number of situations, including one in which you maintained a home office for tax purposes or otherwise used your home for business purposes. Special rules may also apply if you are a member of the uniformed services. Check with a tax professional about current laws that may affect the tax advantages of owning a Dana Point home.
For more on current tax laws, visit the IRS website.
The day taxes are due (April 17th) is fast approaching, and tension is in the air. No one likes sending more money to Washington than they absolutely have to.
Even though most of us pay our taxes on time and in full, few of us don’t always consider how we could bring down our tax bill, and do it legally.
With that in mind, consider home improvements where you can actually get a tax deduction.
Home Improvement Write-Offs on Taxes
You can actually get a break on your taxes for alterations that make your home more energy efficient. This break, the Energy Efficiency Tax Credit, can be claimed by home owners who replace or upgrade portions of their house’s envelope. If you improve the windows, walls, roof, insulation, siding — basically any part of the home that touches the outside air, you can claim some portion on your taxes.
That’s not all: If you switch out your water heater or air conditioning system for a more efficient model, you might be able to take the credit. On the bright side, this deduction is still available for 2011. Unfortunately, though, you can only take it for one year, which means that if you applied for it in 2006, 2007, 2009 or 2010, you’re out of luck.
But even if you’ve already used the Energy Efficiency Tax Credit, you have a few other options for home improvement breaks on your taxes. For example, if you install fuel cells, solar cells, geothermal systems, or solar hot water heaters, you may be able to claim a deduction of up to 30% of the total installation price.
Home improvements can even be a money maker: If you produce more electricity than you use, you can often sell it back to the electrical grid. To sweeten the pot, the federal government doesn’t tax this income, so if your fuel cells, solar cells and geothermal system leave you with more electricity than you need, you might find yourself running a tax-free business!
Other Deductions Often Overlooked on Taxes
One other often forgotten write-off involves charity. Everyone knows you can claim a deduction for all those clothes you cart to Goodwill or the Salvation Army, but you can also claim the cost of the gas you spent hauling your stuff over there. Whenever you drive somewhere to perform volunteer work, you can claim the standard mileage rate for deductions, which varies from year to year. Check the current tax allowances for such deductions at the IRS Website.
Finding all the little breaks you have coming to you can be rewarding — both emotionally and financially. Good luck, and happy hunting!
There are 2 important Dana Point real estate tax deductions you won’t be able to claim in 2012.
Congress was so busy bickering at the end of 2011 that it allowed two important tax breaks for home owners to expire.
Dana Point Real Estate Deductions We Lose in 2012
1. You can no longer deduct the cost of private mortgage insurance premiums.
2. You aren’t getting a tax credit for some of your home energy improvements.
You can take advantage of these provisions when you file your 2011 tax return — but beyond that, who knows?
Private Mortgage Insurance
Up until the end of last year, you could deduct your private mortgage insurance premium (PMI) when calculating your income taxes. It was a benefit targeted to lower- and middle-income home owners. Once you made $100,000 or more, it started disappearing and anyone who had more than $110,000 of adjusted gross income couldn’t use it.
The home owners who have to get mortgage insurance are Dana Point real estate buyers with less than a 20% down payment and refinancers with less than 20% equity. That’s more often first-time home buyers or younger home owners and less often move-up buyers who’ve built up equity in their homes. So in taking away the PMI deduction, Congress is raising taxes paid by first-time home buyers and younger home owners leaving them with less money to spend on housing. That’s especially headed in the wrong direction when the housing market is struggling to recover.
Energy Tax Credit
The tax credit for energy efficiency upgrades on Dana Point real estate wasn’t enormous — it was capped at $500 or 10% of the cost for some projects; less for others. But it was a nice incentive to add insulation, new windows, or to upgrade your HVAC system with a more efficient unit.
Home ownership and energy independence advocates will fight to get those expired tax rules back on the books in 2012 and to have them apply retroactively. It’s a familiar fight — they had to do the same thing at the end of 2010. The battle this year is more complicated however, since we’re in an election year.
Most of us consider the renewal of those policies is a no-brainer. And we really don’t appreciate it when Congress lets those rules expire at the end of one year and then leaves us to wonder the rest of the next year whether they’ll be renewed.
Will you be claiming either of these Dana Point real estate tax breaks on your 2011 returns?
Tax time is also scam time. There are some things you need to do when filing your taxes to protect your identity, and protect yourself from being scammed…
If you think you’ve become a victim of identity theft or fraud, act immediately to minimize the damage to your personal funds and financial accounts, as well as your reputation. Here are some things you can do to protect your identity:
1. Contact the Federal Trade Commission (FTC) to report the situation, whether Online,
2. By telephone toll-free at 1-877-ID THEFT (877-438-4338) or TDD at 202-326-2502, or
3. By mail to Consumer Response Center, FTC, 600 Pennsylvania Avenue, N.W., Washington, DC 20580.
You may also need to contact other agencies for other types of identity theft:
1. Your local office of the Postal Inspection Service if you suspect that an identity thief has submitted a change-of-address form with the Post Office to redirect your mail, or has used the mail to commit frauds involving your identity;
2. The Social Security Administration if you suspect that your Social Security number is being fraudulently used (call 800-269-0271 to report the fraud);
3. The Internal Revenue Service if you suspect the improper use of identification information in connection with tax violations (call 1-800-829-0433 to report the violations).
You also need to immediately contact the three principal credit reporting agencies.
Learn more at the Department of Justice website.
From incentives to deductions, taxes are complicated and can be confusing even for the seasoned property owner. Understanding the ins and outs of some common property tax concerns can help save you money and put your mind at ease. Here are 3 very common tax topics relating to real estate:
1. Natural Disaster Relief
If your home is affected by a natural disaster, your damage costs will be deductible from both state and federal income taxes. Disasters include fires, floods, earthquakes, hurricanes and more. Homeowners can deduct their losses by filing an amended return for the tax year before the event happened. This helps to minimize the wait for refund money that can be used to make repairs or pay for living expenses.
2. Historic Rehabilitation
If your home is a certified historic home, then you may be able to receive a break on your taxes. Many states offer tax incentives, reductions and abatement programs for owners of residential historic homes. These programs are described on the National Trust’s website, which also offers resources and tips for owners of historic homes. Visit the site at http://www.preservationnation.org.
3. Home Improvement Deductions
Many sellers ask if they can deduct the cost of improvements made to their homes from their taxes. The answer is not black and white.
Yes, you can deduct improvements, but only after the home has been sold. This is because improvements add to the basis of your home. Because your basis is subtracted from your selling price to figure out what your home sale gain is, these tax deductions can only be made after your home is sold and your basis is defined.
The IRS has specific qualifications for what counts as a taxable “improvement.” These are renovations that add to your home’s value and extend its “useful life. A taxable improvement examples might include an extra bathroom or updating plumbing, heating or electrical systems.
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