There are many advantages associated with homeownership, including a variety of different tax breaks, which will help to maximize your return. However, with over 70,000 pages of the U.S. tax code; there are several real estate tax deductions that can often be overlooked. If you are a homeowner, continue reading to make sure you take advantage of these tax deductions for homeowners.
Mortgage Interest: The mortgage interest that you have paid over the last year on your primary residence, as well as on a second residence in many cases, can be deducted from your taxable income. Many taxpayers will find mortgage interest as the biggest home-related deduction. By the end of January, you should receive a Form 1098 statement from your lender, which outlines the mortgage interest you paid over the previous year. The amount of interest that you paid on Form 1098 will be the amount you deduct from your tax return.
Property Taxes: You can also deduct property tax payments from your taxes. If you have an escrow or impound account, your mortgage statement will likely list the amount of real estate taxes that you have paid. If you do not have an escrow account for your payments, then review your check records to determine how much you have paid over the year.
“Green” Home Improvements: Renovations that make your home more environmentally friendly can not only help you save big on consumption bills, but can also earn you tax breaks. Many people don’t take advantage of tax credits that can be earned through the installation of “green” home improvements. Chances are, if a recent home improvement is saving you money on your water or energy bill, it could also be saving you money on your taxes. State, county and city credits and tax breaks are available simply for having dual-paned windows, insulation or solar panels, among other things. Talk to your tax preparer or research your local government’s website to find what deductions your home may be eligible for.
CODI Income-Tax: Many homeowners have resolved debts in the last couple years through foreclosures, short sales, deed in lieu of foreclosure or settlement via partial payment. When a debt is forgiven through any of these mediums, the debt is included in a taxpayer’s gross income. This is called the Cancellation of Debt Income (CODI). In 2007, the CODI was temporarily exempted under the Mortgage Debt Forgiveness Relief Act for nearly 100,000 homeowners. This was done to avoid penalizing homeowners for these sorts of resolutions to upside-down home mortgages. Though the act expired on Dec. 31st, 2013, hundreds of thousands of American’s are eligible to take advantage of the CODI break when filing their 2013 return. If you were able to settle a defaulted home loan, close on a short sale or foreclosure last year, you’re most likely eligible for the break.
If you have questions about your eligibility for the tax breaks described above, contact a tax professional or visit the official IRS website, www.irs.gov.
This article was provided by Prospect Financial Group, Inc., a San Diego-based mortgage lender.