With images of Spring blooms, also comes the reality of tax season and over 4 million words on 70,000 pages of tax code ready to deciphered. Most Americans tap into a mere 15 pages and run the risk of missing key opportunities to save. Here is a list of 3 OF THE MOST OVERLOOKED REAL ESTATE RELATED TAX BREAKS :
1. STATE AND LOCAL TAX BREAKS FOR GREEN HOME IMPROVEMENTS.
Most of us focus on federal income tax deductions, because federal taxes seem like the biggest bank account drain. In fact, in some state tax rates can reach as much as 15 percent of annual income!
As the recession recovery made it’s way into full swing in 2013, many homeowners began embarking down a path of improving their home’s energy efficiency for a variety of reasons, including cash savings on their utility bills. Many of those improvements are eligible for state, county and/or city tax credits or tax breaks. If you installed dual-paned windows, insulation, low-flow plumbing appliances, tankless water heaters or solar panels in 2013, dig up your receipts and talk with your tax preparer or visit your state, county and city government websites to research tax advantages you might already be eligible for.
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2. MORTGAGE INTEREST TAX BREAK. Many home buyers expressly call out the mortgage interest tax deduction as a major motivation behind their desire to own a home. Proof: in a survey conducted by the California Association of Realtors(R), 79 percent of people who bought a home in 2012 said the mortgage interest and property tax deductions were “extremely important” to their decision to buy. The ability to write-off interest on up to $1 million of mortgage debt shifts the affordability equation and makes buying more financially compelling than renting for thousands of home owners every year.
So it shocks and surprises me every time I read the numbers of home owners who simply don’t take the mortgage interest deduction every year. According to the American Institute for Economics Research, only about 63 percent of home owners itemize deductions – a pre-requisite to taking the mortgage interest deduction and its cousin, the property tax deduction.
Now, there are a number of home owners whose income tax liability is simply so low that itemizing their tax deductions doesn’t pencil. That just means that some people’s holistic financial picture, including the income they earn and the mortgage interest they deduct, renders the standard deduction larger than the tax break they would receive by virtue of the mortgage interest and other itemized deductions. However, my personal experience has been that many home owners who could be eligible for great benefits from itemizing don’t fully appreciate or simply don’t feel up to the task of determining whether they have sufficient non-mortgage related deductions to itemize, so they do their own taxes and just take the standard interest deduction to minimize the work.
If you have a high mortgage or property tax bill, it might be obvious that itemizing makes sense. But if not, you owe it to yourself – and your bank account – to at least try working with a tax preparer or committing to spend the time and energy it takes to explore the question of whether itemizing makes sense. Even an extra thousand dollars or two in tax savings can make a big difference to your savings and your financial future, over time.
3. CODI INCOME TAX EXEMPTIONS. Again, 2013 was a year in which many home owners – or former home owners – took pains to use their newly stable incomes to heal the financial wounds of the recession. For many, this involved settling debts with former lenders on homes that were foreclosed, short sold or even retained with defaulted second loans or home equity lines of credit.
Normally, defaulted mortgage debt that is forgiven through a foreclosure, short sale, deed in lieu of foreclosure or settlement via partial payment is actually charged to a taxpayer as income. It’s called Cancellation of Debt Income, or CODI. Under the 2007 Mortgage Debt Forgiveness Relief Act (“the Act”), though, the IRS has temporarily exempted CODI from incurring income tax liability for as many as 100,000 home owners a year,to avoid penalizing home owners for these sorts of settlements and resolutions to upside-down home mortgages.
The Act expired on December 31, 2013 (though talks are ongoing about extending it into this year). If you were one of the hundreds of thousands of American home owners who was able to close a short sale or settle a defaulted home loan in 2013, chances are good that you are eligible to tax advantage of the CODI tax break when you file your 2013 return.
GOLD COAST REAL ESTATE – GOLD COAST EXCLUSIVE – KRISTINE FARRA – CHICAGO REAL ESTATE