Wednesday, 16 August 2017

Easy Mistakes Denver Homeowners Make on Their Taxes

Written by Posted On Saturday, 04 February 2017 01:58

The month of April is coming up fast and the good news is you still have time to find all of those real estate-related deductions. As you calculate your tax returns, be careful not to commit any of these nine home-related tax mistakes, which tax pros say are especially common and can cost you money or draw the IRS to your doorstep.

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Mistake #1: Deducting the wrong year for property taxes

You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind — that is, you’re not billed for 2013 property taxes until 2014. But that’s irrelevant to the IRS. Make sure you enter on your federal forms the amount you actually paid in that tax year, no matter what the date is on your tax bill.

Mistake #2: Confusing escrow amount for actual taxes paid

If your lender escrows funds to pay your property taxes, don’t just deduct the amount escrowed. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200 or the amount of property taxes noted on the Form 1098 that your lender sends. If you don’t receive Form 1098, contact the agency that collects property tax to find out how much you paid. Your escrow may also include your homeowner’s insurance, which is not deductible.

Mistake #3: Deducting points paid to refinance

You can deduct points you paid your lender to secure your mortgage in full for the year you bought your home. However, when you refinance, you must deduct points over the life of your new loan. For example, if you paid $2,000 in points to refinance into a 15-year mortgage, your tax deduction is $2,000 divided by 15 years, or $133 per year.

Mistake #4: Misjudging the home office tax deduction

This deduction is complicated and often doesn’t amount to much. It also has to be recaptured if you turn a profit when you sell your home, and can pique the IRS’s interest in your return. The good news is, there’s a new simplified home office deduction option if you don’t want to claim actual costs. If you’re eligible, you can deduct $5 per square foot up to 300 feet of office space, or up to $1,500 per year.

Mistake #5: Failing to repay the first-time homebuyer tax credit

If you used the original homebuyer tax credit in 2008, you must repay 1/15th of the credit over 15 years. If you used the tax credit in 2009 or 2010 and then within 36 months you sold your house or stopped using it as your primary residence, you also have to pay back the credit.

Mistake #6: Failing to track home-related expenses

If the IRS does come calling, don’t be scrambling to compile your records after the fact. File or scan and store home office and home improvement expense receipts and other home-related documents as you go so you are prepared in the event you need to show them to the IRS.

Mistake #7: Forgetting to keep track of capital gains

If you sold your main home last year, don’t forget to pay capital gains taxes on any profit. You can typically exclude $250,000 of any profits from taxes (or $500,000 if you’re married filing jointly).

So if your cost basis for your home is $100,000 (what you paid for it plus any improvements) and you sold it for $400,000, your capital gains are $300,000. If you’re single, you owe taxes on $50,000 of gains. However, there are minimum time limits for holding property to take advantage of the exclusions, and other details. Consult IRS Publication 523.

Mistake #8: Filing incorrectly for energy tax credits

If you made any eligible improvements in 2016, such as installing energy-efficient windows and doors, you may be able to take a 10% tax credit on the product cost only. Installation costs aren’t included. (up to $500 max credit; with some systems your cap is even lower than $500). But keep in mind it’s a lifetime credit. If you claimed the credit in any recent years, you’re done.

Installing a solar electric, solar water heater, geothermal, or small wind energy system can also make you eligible to take the Residential Energy Efficient Property Credit. To claim the deduction, you have to use the complicated Form 5695, which can mean crosschecking with half a dozen other IRS forms. Read the instructions carefully.

Mistake #9: Claiming too much for the mortgage interest tax deduction

Taxpayers are allowed to deduct mortgage interest on home loan debt up to $1 million, plus they can also deduct up to $100,000 in home equity loan debt.

This article is meant to provide general information about tax laws and consequences. It should not be relied upon as tax or legal advice applicable to particular transactions or circumstances. Always, consult a tax professional for such advice.

If you have any real estate related questions, feel free to contact your local metro Denver real estate professionals, The Bandy Team! Our team will guide you through all phases of the home buying and home selling process in Denver. Let us also show you homes in other Denver areas including real estate in Elizabethvariety of properties in Franktown or the lovely homes in Larkspur.

We are here to guide you every step of the way!

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Until next time,

Marianne Bandy, Team Leader

The Bandy Team

 Keller Williams Park Meadows

BandyTeam.com - Denver Real Estate & Homes  

720-466-3790

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Marianne Bandy

Marianne is a professional LDS Realtor in Denver with outstanding integrity, who takes the time to understand your specific housing and family needs. She is the team leader of one of the top selling Real Estate Teams in her broker's office. She understands that a big part of your family's happiness depends on the home and community where you live.  LDS Realtor in Denver Colorado

One of Marianne’s greatest passions is helping people with their Real Estate transactions, typically one of the largest financial transactions they will undertake. Marianne is the listing agent for the team but also loves working with Latter Day Saint home buyers as well.  Marianne uses her expertise and market knowledge so that her clients get the most accurate and up to date information possible. Marianne has a breadth of experience working with clients through all aspects of closing on a home. When listing homes for sale, this includes readying the home for sale, developing a marketing strategy, getting feedback on showings, negotiating inspection items,  and many other details that lead up to a successful closing. 

Marianne is excellent at contract negotiations and looking out for the best interests of her clients. She has obtained the Certified Negotiation Expert (CNE) certification. When helping Buyers, she loves the feeling of helping families connect with the right home in the right community. She also has knowledge of ward and stake boundaries, meeting house locations,  youth programs, drive time to the LDS Denver temple, and seminary locations for your high school children. 

If you’re looking for solid results and a WOW! experience, then call Marianne and put her to work for you. In the last two years, the Bandy Team sold 125 homes.  The Bandy Team has the experience and proven systems you need to make your transaction as smooth and worry-free as possible. 

The Bandy Team is committed to conducting business with the utmost integrity. The team was formed on the principles of honesty and loyalty with clients. Marianne believes in surrounding herself with good people that share her values.  This includes good business partners that can aid in all aspects of a real estate transaction, including home inspections, loans, transaction coordination, home repairs, etc. Marianne and her entire team are committed to the highest levels of customer service for their clients. 

Who you work with Matters!  

LDS Real Estate Agent in Denver Colorado

www.BandyHomes.com

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