27 New Year’s Resolutions for Homeowners

Heading into a new year, we feel an obligation to make resolutions.

Personal resolutions can be motivating, exciting or just plain silly. This year I will… eat healthier, save money, run the Long Branch 5K, learn to surf in Monmouth Beach, do the Asbury Park Polar Bear Plunge.

As a homeowner, resolutions can also be empowering. Some are mission-critical for a solid financial year, others maybe fall in the wish list.

homeowners-new-years-resolutions

Need ideas?  This list should get you started:

1. “Lose weight.”
Losing the weight of excess possessions save time (you know, like looking everywhere for your shoes in a cluttered bedroom), money (where did I put that bill?) and your mind (psychologists agree that clutter and stress go hand-in-hand).

2. Get organized.
The logical next step to decluttering is to find a logical place for what’s left.

Need inspiration? Walk through a home storage store or get yourself on Pinterest for some seriously clever organizational ideas.

RELATED: 7 Clever Weighs to Hide Things in Plain Sight

3. Save energy.
Saving energy is good for the planet and it’s also great for your pocketbook. EnergyStar appliances are just the start.

• LED bulbs are much more efficient and now come in warmer tones and dimmable options for a more homey feel. Use a lighting calculator to measure energy and cost savings.
• Water heaters expend energy storing hot water. The Department of Energy says tankless water heaters are 8 percent to 34 percent more energy efficient than standard water heaters, depending on usage.
• Going solar no longer has to be ugly roof additions. Have you seen the new Tesla solar tiles?

Saving on energy can even have some great tax implications! Check out our article on the best energy enhancements for optimal tax write-offs.

4. Build green.
Going green is more than energy usage. It’s also about sustainability and healthful choices in finishes.

• Change out laminates and carpets for natural hard surfaces.
• Remove asbestos (with a professional).
• Use sustainable and recycled materials like bamboo, cork and Vetrazzo.
• Need to paint? Go with a low- or no-VOC non-toxic paint.
• If you’re texturizing a wall, try Earth plaster instead of gypsum.

5. Get healthy.
Create a workout space, so there’s no excuse when the weather turns. If you’re looking to move, check out neighborhoods with nearby trails, fitness centers and amenities.

RELATED: How to Choose the Perfect Neighborhood for you and your Family

6. Just fix it.
You’ve walked by that broken switch plate how many times?

Go through the house like a home inspector and create a checklist of repairs that need to be done. When it comes time to sell and appraise your house, you’ll be glad these were done.

RELATED: The Benefit of An Advance Home Inspection

7. Set yourself (debt) free.
Those who carry debt and struggle to pay it off are twice as likely to develop mental health problems, according to a study by John Gathergood of the University of Nottingham.

Paying off debt sets you free in so many ways, plus it’s great for your credit score. Think of all the things you could do in the future with the money you save on payments and interest (maybe even pay off your home early — see #20).

8. Remodel right.
Is it time to update a dated bathroom? Replace the garage door?

If you’re wondering what improvements will lead to a better return on investment when you sell, check out our article on which home renovations offer the greatest return on investment. Our Agent’s can also tell you what improvements are best for your neighborhood and house type.

9. Maximize your mortgage.
A recent Zillow study showed that Americans spent more time researching a car purchase than their home loan. Since the Fed announced that it’s planning three rate hikes in 2017, it’s wise to refi sooner than later.

Have you reached the loan-to-value needed to remove your mortgage insurance? Make an appointment to talk to a lender for a mortgage checkup.

10. Learn to DIY.
The more minor fixes (and if you’re really skilled, major fixes) you can do yourself, the more money you save.

Thanks to YouTube, there are a lot of great how-tos. Other great sites include Instructables, How Stuff Works, Do It Yourself and myriad home improvement shows/channels.

11. Plan to maintain.
Create a maintenance calendar to remember those routine maintenance tasks, such as replacing furnace air filters, changing smoke detector batteries and winterizing sprinklers.

Whether it’s a paper calendar or your iCal on your phone, plan out scheduled maintenance so you won’t hear that relentless beeping of the smoke detector in the middle of the night — or run out of propane before the steaks are done (tragedy!).

12. Invest.
Is this the year to buy a rental property? Or a vacation home?

This will really require you to understand your financial situation, so talk to your financial advisor and an Agent who understands investment properties.

13. Take an inventory.
That new flat screen television and 360 viewer you got for Christmas are going to need coverage. If disaster happens, do you really know what’s in your house?

At minimum, make a list and save it on the cloud. Sites like Know Your Stuff and DocuHome help you document items in a room by tagging pics.

14. Do the double check.
The Insurance Information Institute says a standard policy covers the structure and possessions against fire, hurricanes, wind, hail, lightning, theft and vandalism.

Most other disasters are add-ons. Talk to your insurance agent and make sure you have not only enough property coverage but also enough liability coverage.

15. Get a “CLUE”.
Your homeowners’ insurance premiums are dependent on a number of factors, such as credit score and the Comprehensive Loss Underwriting Exchange (CLUE) report of claim history.

You can request a free report from LexisNexis.

16. Make your neighborhood better.
Get involved with your local HOA, neighborhood watch or community events. The first step to a better neighborhood is your personal involvement.

For news, information about issues that effect your community and to keep in touch with your neighbors; you can also join the Community Facebook Pages and Group we maintain. Like the Bradley Beach, New Jersey Facebook Page or join the Groups for Bradley Beach, NJ Residents, Ocean Township, NJ Residents or our Jersey Shore and Monmouth County Lifestyle Group.

17. Save water.
Dry climate areas struggle for water in dense population centers. Watering restrictions can turn your grass brown and overuse can cost you with tiered billing. Even the New Jersey climates experience seasonal droughts or below average reservoir levels.

Xeriscape what you can outside and look for indoor appliances that use less water. If you live in a state with conservation legislation, get those regulators on your shower heads and hoses.

18. Get dirty.
Landscaping is essential to curb appeal. So this year, really plan to keep up with it or think about going to a more easy-care style.

RELATED: Enhance the Value of Your Home with Landscaping

Out back, consider a garden to save money on better produce. Get a composter for garden and food waste.

19. Plan for emergencies.
Natural disasters and social disruptions are unwanted, but they happen. To be ready, you actually need to prepare!

Do you have a family evacuation plan? Emergency supplies? Go to ready.gov for a ton of ideas on prevention and disaster preparedness.

20. Get smart.
Smart home features make your home more efficient and easy to use, even remotely. Look for these to be the “wow” factor that could make your house stand out. Who doesn’t love Alexa-enabled appliances?

RELATED: Increasing the Value of Your Home with These Most Popular Smart Home Accessories

21. Make extra mortgage payments.
You can take thousands of dollars and years off your mortgage by putting an extra amount towards the principal each month. For a $400,000 at 4.25 percent interest with 25 of its 30 years left, you could save $21,107 and take two years off by paying an extra $100 per month.

RELATED: How To Pay Your Mortgage Off Early

What could you save? Try Bankrate’s handy extra payment calculator.

22. Pay off your second mortgage.
Whether it’s a one- or multiple-year plan, it won’t happen if you don’t budget for it.

23. Scrutinize your property tax.
If you live in an area where your home value has dropped since the last assessment, you need to really look at that bill.

Is the assessment correct? Is it going up faster than the sale prices of comparable homes? You can appeal via your local appraisal review board.

24. Optimize your withholding.
If you’re a first-time homeowner, you’re going to enjoy those new deductions. Be sure to talk to your tax advisor about adjusting your paycheck withholding accordingly (unless you like Uncle Sam making money off your income instead of you!).

RELATED: Check Out Patrick Parker Realty’s Annual Tax Season Blog Series Articles and Resources

25. Pay bills, especially your mortgage, on time.
It goes a long way to improving your credit. “The longer bills are paid on time, the higher the FICO Score should rise,” says myFICO. “That’s because as recent “good payment” patterns appear on a credit report, the impact of past credit problems on a FICO Score fade.”

26. Cook dinner.
You know that fabulous kitchen you had to have when you bought your home? Use it!

The USDA’s 2016-17 Food Price Outlook shows the price of groceries decreased in 2016, with a less than 1.5 percent increase in 2017, but restaurants will continue to climb beyond 2016’s 2.4 percent increase.

You’ll also eat healthier at home by controlling what goes into your body. If you own a home with a less-than-stellar kitchen, cooking will probably motivate you to make some appliance and feature upgrades that will pay off when you sell.

27. Get hip.
Dated cabinets and 1980s fixtures don’t help your resale value. Evaluate your style and start looking at upcoming (not past) trends.

Although we’re still in a “sellers’ market” that will likely change in the next few years. A modern home (unless it’s a historic property) is simply more appealing and makes the buyer feel like it’s move-in ready.

YOUR TURN

Your house is your biggest asset. While not all of these resolutions are essential, aim to start out by focusing on your mortgage and personal finances. What do you have to add? Where might you start? Sound off on the Patrick Parker Realty Facebook Page, on our Twitter or LinkedIn feeds. And don’t forget to sign up for our monthly HOME ADVICE eNewsletter for articles like this one delivered straight to your inbox.

Here’s to a healthier, happier and successful New Year!

From the Patrick Parker Realty Tax Season Blog Series:
7 Ways To Avoid An Audit
Reduce Your Chances of Getting A Second Look From The IRS with Tips From the Pros

tax-dayThat’s it… it’s here… Tax Day is the 15th!

It’s the 1% no one wants to be a part of: the share of Americans who get audited.

The Internal Revenue Service is tracking down people who may be shorting the tax man by understating their income, exaggerating tax breaks and skipping out on other tax liabilities. And it isn’t just the rich and famous that agents are going after. Six percent of the IRS audits conducted on individuals in 2012 were for people who made between $200,000 and $1 million, according to IRS data.

Taxpayers can get flagged for forgetting important forms, mixing up numbers and erroneously claiming tax breaks. Sometimes, one mistake can open the door for the IRS to take a closer look at the rest of the return, tax pros say. “You don’t want to go through that headache,” says Paul Gevertzman, a partner at Anchin, Block & Anchin, an accounting firm in New York City.

That said, most taxpayers can stay in the clear if they report their income honestly and have the proper documentation. And while there is no such thing as “audit-proofing” a return, taxpayers can take steps to reduce their chances of facing extra scrutiny from Uncle Sam.

Here are 7 things you can do to avoid getting audited:

1. Watch what you tweet
Tax officials don’t just scour public records in their efforts to catch tax cheats. They also check Facebook, Twitter and other websites for clues that a person may be lying about the scope of their business and how much they make.

For example, some tax officials may take note if a small business owner boasts online about business projects taking place in multiple states but doesn’t report that income to the IRS and the respective state tax authorities, says Gevertzman. Likewise, taxpayers who claim they are having financial difficulties in an effort to reduce the taxes they owe should not post on social media about how much business is booming.The IRS says audit decisions are based on the information taxpayers provide on their returns, not what they post on social media. The agency, however, might monitor publicly available information to help with an existing case. And agents are not allowed to use fake profiles or deceive people on social media sites to collect information.

2. Report all of your income
Most taxpayers know to report all income stated on their W-2 and 1099 forms, since the IRS has matching software that can help it catch income that was reported under a person’s Social Security number. But even less obvious income should be reported, tax pros say. This includes income earned by self-employed individuals that may not appear on a 1099 form. People should also report gambling winnings, which casinos must generally report to the IRS, says Melanie Lauridsen, a technical manager on the tax staff for the American Institute of Certified Public Accountants.

For instance, winnings of at least $1,200 from a bingo game or slot machine must be reported, according to IRS rules, as well as prizes of more than $5,000 from a poker tournament, though the requirements vary per game. (Gambling winnings can also be offset by losses if taxpayers can provide receipts and other documentation.) People also need to report prizes they don’t realize are taxable, like the baseball fan who catches a home run ball that could be worth hundreds or thousands of dollars, says Lauridsen. Any athletes bringing home medals from the Winter Olympics in Sochi may also have to face the tax man when they return.

3. Don’t mix business with pleasure
Self-employed taxpayers need to be careful when claiming tax breaks and writing off business expenses if they don’t want to get a double-take from the IRS. Taxpayers often forget, for instance, that only 50% of business meal and entertainment expenses can be deducted, and they must be identified as business costs. People looking to write off travel expenses should keep logs of business trips and visits made to clients to work-related travel costs from those incurred on personal trips. And even though the IRS has introduced a simplified option for claiming the home office deduction, the office still has to meet the main requirement of being used exclusively for business and of being the main place of business. That means that if the children are using the room to play games or watch TV, the office gets disqualified, says Lauridsen.

4. Pay your nanny taxes
Families who find they need to hire someone like a nanny or a home health aide may be more focused on their daily chores than the IRS, but the decision could come with added tax responsibilities. Such workers need to be reported properly to the IRS and families may need to pay Social Security and Medicare taxes and to withhold the worker’s share of those taxes just like any employer, says Stephanie Breedlove, vice president of Care.com HomePay, a company that helps families handle payroll taxes and labor law.

The rules apply to anyone who was paid more than $1,800 last year or $1,900 this year. Often, families don’t realize their error until they’ve parted ways with the nanny and he or she tries to file for unemployment benefits and state authorities learn the person was paid off the books, says Breedlove. Those families then need to pay any back taxes and penalties owed and could be found guilty of tax evasion, she says. Families should also avoid incorrectly listing the nanny as an employee of a small business they may own, which could lead to an exaggeration of business credits and deductions.

5. Exaggerating charitable deductions
Tax pros say that many taxpayers forget to write off furniture, clothing and other items they donate to charity. But claiming those items incorrectly or exaggerating their value could get a return flagged by the IRS. Clothes and home appliances must be valued at their thrift store prices and not their original sale prices, says Lauridsen of the AICPA.

“People have a tendency to be emotionally attached to their things so they have a tendency to over value them when they’re doing charitable contributions,” she says. Salvation Army and Goodwill offer guides to help donors determine the value of certain items. Pricier items like paintings, homes and land need to be appraised at the time of donation. Donated cars, which are likely to be sold by charitable organizations, will be valued based on the price that the group gets for selling the car.

6. Don’t try to write off hobbies
Some people may try to write off losses they’ve incurred from a side business like horse breeding or a small business making and selling hand crafted toys. But the IRS requires taxpayers to show they’re going into these ventures with the intention of making a profit. If they lose money year after year, the IRS prohibits taxpayers from using those losses to offset other income unless they can show they made a profit in at least 3 of the last 5 tax years, or 2 of the last 7 tax years.

The IRS also looks to see if taxpayers are making changes to try to make the venture profitable and if they depend on that income to live on. “ You’ve got to show why it’s still a business,” says Gevertzman. Those who don’t make a good case may be suspected of investing in the hobby solely for the purpose of creating a loss that could be used to reduce their tax bill—and they could owe penalties and interest for any taxes they underpaid in the past.

7. Go over the numbers one more time
This sounds like a no brainer but the IRS caught 2.7 million math errors on tax returns in 2012. Taxpayers often make mistakes when calculating how much they owe and how big their refunds should be. Those blunders can get the attention of the IRS, which scans for deductions that seem out of line with a person’s income, says Gevertzman. Some people who accidentally reverse numbers or make enter incorrect Social Security numbers and checking account information could also have their returns held up and their refunds delayed says Lauridsen of the AICPA. Many of these errors can be caught early or avoided through electronic filing. It also helps to use exact numbers, since rounded numbers may give the IRS reason to request more specific figures and documentation.

Keep in mind that this is general information designed to help you put these valuable deductions on your radar. Patrick Parker Realty Agents and Realtors are not certified accountants. Please be sure to check with your tax adviser to see if you qualify for a particular credit or deduction.

_____________________________________________________________________


The Patrick Parker Realty Tax Season Blog Series will cover many topics as they relate to real estate and increasing your income tax refund. Such topics will include Home Ownership Tax Breaks, Hidden Tax Deductions, Deductions on Mortgage Interest, Reporting on the Sale of Your Home, Home Purchase Tax Credits and more. In addition, our Blog Series will explore Tax Incentives as they relate to major transitions and lifestyles; Marriage, Birth, Divorce, Death of Spouse, Health Insurance, Caretaking of Dependents, Business Owners, Commuters and more.

Check in to The Patrick Parker Realty Blog each Tuesday, Thursday and Saturday through Tax Day for new posts. You can also follow The Patrick Parker Realty Tax Season Blog Series on Facebook and Twitter using #taxseasonblog.

More Info About The Patrick Parker Realty Tax Season Blog Series >
Tax Terms Glossary >
More Tax Aspects of Home Ownership >

For more information about paying taxes on the sale or purchase of your home or any other questions you have about this article please speak with your tax professional or visit www.irs.gov.

From the Patrick Parker Realty Tax Season Blog Series:
Tax Implications: Converting A Second Home Into A Primary Residence

ppre-refundAlthough the rule that allows homeowners to take up to $500,000 of profit tax-free applies only to the sale of your principal residence, it has been possible to extend the break to a second home by converting it to your principal residence before you sell. Once you live in that home for two years, you have been able to exclude up to $500,000 of profit again. That way, savvy taxpayers can claim the exclusion on multiple homes.

Note: Congress has clamped down on this break for taxpayers who convert a second home into a principal residence after 2008. A portion of the gain on a subsequent sale of the home will be ineligible for the home-sale exclusion, even if the seller meets the two-year ownership-and-use tests.

The portion of the profit subject to tax is based on the ratio of the time after 2008 when the house was a second home or a rental unit, to the total amount of time you owned it. So if you have owned a vacation home for 18 years and make it your main residence in 2013 for two years before selling it, only 10 percent of the gain (two years of nonqualified second home use divided by 20 years of total ownership) is taxed. The rest would qualify for the exclusion of up to $500,000.

Keep in mind that this is general information designed to help you put these valuable deductions on your radar. Patrick Parker Realty Agents and Realtors are not certified accountants. Please be sure to check with your tax adviser to see if you qualify for a particular credit or deduction.

_____________________________________________________________________


The Patrick Parker Realty Tax Season Blog Series will cover many topics as they relate to real estate and increasing your income tax refund. Such topics will include Home Ownership Tax Breaks, Hidden Tax Deductions, Deductions on Mortgage Interest, Reporting on the Sale of Your Home, Home Purchase Tax Credits and more. In addition, our Blog Series will explore Tax Incentives as they relate to major transitions and lifestyles; Marriage, Birth, Divorce, Death of Spouse, Health Insurance, Caretaking of Dependents, Business Owners, Commuters and more.

Check in to The Patrick Parker Realty Blog each Tuesday, Thursday and Saturday through Tax Day for new posts. You can also follow The Patrick Parker Realty Tax Season Blog Series on Facebook and Twitter using #taxseasonblog.

More Info About The Patrick Parker Realty Tax Season Blog Series >
Tax Terms Glossary >
More Tax Aspects of Home Ownership >

For more information about paying taxes on the sale or purchase of your home or any other questions you have about this article please speak with your tax professional or visit www.irs.gov.

From the Patrick Parker Realty Tax Season Blog Series:
Tax Tips for Short Sales

ppre-refundUnderstanding how a short sale or restructure will be viewed by the Internal Revenue Service can help you plan your tax situation ahead of time.

If you are in a position where you have to sell your house for less than the amount you owe on it or have to restructure your mortgage with the lender in order to avoid foreclosure proceedings, you may face tax implications on the transaction. Understanding how a short sale or restructure will be viewed by the Internal Revenue Service can help you plan your tax situation ahead of time.

What is a short sale?
A short sale happens when you sell your property for less than what you owe on its mortgage(s). A short sale has to be approved by your lender because it will not receive the full amount of the outstanding loans.

After the sale, the loan will still have an unpaid balance, called the deficiency. Depending on the lender and the laws of your state, a short sale can result either in you owing the deficiency to the lender as unsecured debt, or in the lender forgiving the deficiency. A short sale is often negotiated as an alternative to foreclosure, as it often involves fewer costs and fees.

MORE INFO: The Mortgage Forgiveness Debt Relief Act and Debt Forgiveness

Tax implications of forgiven debt
If your lender forgives the balance of your mortgage after the short sale, you may not be out of the woods yet. You may have to include the forgiven debt as taxable income in the year of the short sale. The Mortgage Forgiveness Debt Relief Act of 2007 exempted that income through 2014 from taxation, up to $2 million, if it was your principal residence, or main home. However, the tax still applies to second or vacation houses as well as rental properties. Beginning in 2015, the exemption is no longer available unless it is reinstated.

Mortgage restructuring
Before seeking a short sale or being forced into a foreclosure, you may be able to negotiate a mortgage restructuring to allow you to stay in your home and to be more able to afford your mortgage’s terms and interest rate. These types of loan modifications can take many forms and may include:

• Reduced interest rates
• A reduction of the loan principal
• Stretching out the payments over a longer time frame to make payments smaller

Of these options, only a principal reduction may have income tax implications. The principal reduction may be considered taxable income to you in the year of the restructure. If the property is your main home, it will fall under the provisions of the Mortgage Forgiveness Debt Relief Act and will be excluded from taxable income.

Dealing with incorrect 1099-C forms
If your lender has reduced or eradicated your debt under a short sale or mortgage restructure, it will send you IRS Form 1099-C at the end of the year, showing the amount of the debt forgiven and the fair market value of the property. Review the document carefully and compare it to your own figures. If it contains misstatements, contact the lender and attempt to have it correct the form. If it is not able, or not willing, to do that in a timely manner, recalculate the correct figures and provide the IRS with documentation showing how you arrived at your figures when you file your income tax return.

Keep in mind that this is general information designed to help you put these valuable deductions on your radar. Patrick Parker Realty Agents and Realtors are not certified accountants. Please be sure to check with your tax adviser to see if you qualify for a particular credit or deduction.

_____________________________________________________________________

The Patrick Parker Realty Tax Season Blog Series will cover many topics as they relate to real estate and increasing your income tax refund. Such topics will include Home Ownership Tax Breaks, Hidden Tax Deductions, Deductions on Mortgage Interest, Reporting on the Sale of Your Home, Home Purchase Tax Credits and more. In addition, our Blog Series will explore Tax Incentives as they relate to major transitions and lifestyles; Marriage, Birth, Divorce, Death of Spouse, Health Insurance, Caretaking of Dependents, Business Owners, Commuters and more.

Check in to The Patrick Parker Realty Blog each Tuesday, Thursday and Saturday through Tax Day for new posts. You can also follow The Patrick Parker Realty Tax Season Blog Series on Facebook and Twitter using #taxseasonblog.

More Info About The Patrick Parker Realty Tax Season Blog Series >
Tax Terms Glossary >
More Tax Aspects of Home Ownership >

For more information about paying taxes on the sale or purchase of your home or any other questions you have about this article please speak with your tax professional or visit www.irs.gov.

 

From the Patrick Parker Reaty Tax Season Blog Series:
10 Energy-Related Home Improvements and Taxes

Note: The content of this article applies only to taxes prepared for 2010. We are offering it for reference only. As your tax advisor for more information.

ppre-refundHomeowners have a variety of financial incentives to “go green.” There are improvements, small and large, that can make your home more energy-efficient while also saving you money and taxes.

Go Green and Earn Green
The American Recovery and Reinvestment Act of 2009 tripled the financial incentives for making repairs that can significantly reduce your utility bills and contribute to a “green” environment, while helping you save money on taxes.

The incentives take the form of tax credits, which reduce the amount of tax you owe dollar-for-dollar. Moreover, you can claim the credits whether or not you itemize deductions on your federal income tax return. They are available to owners of existing homes through 2010.

Here are 10 eligible home improvements you can make to reduce the transmission of heat and cold, thereby using less energy in your home:

1. Insulation
2. Energy Star exterior doors and windows, including skylights
3. New metal or asphalt roof with appropriate pigmented coatings or cooling granules
4. Electric heat pumps
5. Electric heat pump water heaters
6. Approved central air-conditioning
7. Approved natural gas, propane or oil water heaters
8. Approved natural gas, propane or oil furnace or hot water boilers
9. Advanced main air circulating fans
10. Biomass stoves using “plant-derived” fuel such as agricultural crops, wood pellets, grasses, etc

Meeting Standards
The legislation also tightened performance and quality standards for energy-efficient technology.

Although the federal government website refers taxpayers to Energy Star information (see www.EnergyStar.gov), not all equipment with the Energy Star label qualifies for these credits. Look for the manufacturer’s Tax Certification Statement, either on the manufacturer’s website or on the product packaging, and keep it with your tax records.

Available Tax Credits
For improvements made by December 31, 2010, the credit is 30% of the purchase price and the overall cap on the available credit is $1,500 over both 2009 and 2010.

Spend as little as $5,000 before the end of 2010 on qualifying energy-saving home improvements and you can cut $1,500 from your 2010 federal income tax bill.

To qualify, you must own the home and use it as your principal residence. If you previously claimed the $500 credit available before 2009, you may now make additional energy-focused home improvements and qualify for the entire $1,500 credit.

Depending on where you live, you may also qualify for state and local tax incentives, ranging from tax credits and installation rebates to property tax reductions. Several states provide credits for energy-efficient renovations. Many local utilities offer cash rebates for purchasing energy-efficient equipment. These incentives are in addition to any federal tax incentives you receive.

Residential Alternative Energy Credit
As a separate category, there are tax credits for devices designed to generate energy from alternative sources. These credits may be applied to all homes, including both existing homes and new construction and to principal residences and vacation homes. In calculating your costs for these items, consider both the purchase price and the labor costs associated with installation.

For the 2010 tax year, a nonrefundable tax credit equal to 30% of the full cost may be taken for:

Solar hot water heaters
Geothermal heat pumps

There is also a 30% credit for each:

Half kilowatt of electric capacity generated by a wind turbine—to a maximum of $4,000 per year (previously capped at $500 per half kilowatt)

And there is a 30% credit, to a maximum of $500 per year, for each:

Half kilowatt of electric capacity from fuel cell plants

Keep in mind that this is general information designed to help you put these valuable deductions on your radar. Patrick Parker Realty Agents and Realtors are not certified accountants. Please be sure to check with your tax adviser to see if you qualify for a particular credit or deduction.

 

_____________________________________________________________________

The Patrick Parker Realty Tax Season Blog Series will cover many topics as they relate to real estate and increasing your income tax refund. Such topics will include Home Ownership Tax Breaks, Hidden Tax Deductions, Deductions on Mortgage Interest, Reporting on the Sale of Your Home, Home Purchase Tax Credits and more. In addition, our Blog Series will explore Tax Incentives as they relate to major transitions and lifestyles; Marriage, Birth, Divorce, Death of Spouse, Health Insurance, Caretaking of Dependents, Business Owners, Commuters and more.

Check in to The 
Patrick Parker Realty Blog each Tuesday, Thursday and Saturday through Tax Day for new posts. You can also follow The Patrick Parker Realty Tax Season Blog Series on Facebook and Twitter using #taxseasonblog.

More Info About The Patrick Parker Realty Tax Season Blog Series >
Tax Terms Glossary >
More Tax Aspects of Home Ownership >

For more information about paying taxes on the sale or purchase of your home or any other questions you have about this article please speak with your tax professional or visit www.irs.gov.

 

 

From the Patrick Parker Realty Tax Season Blog Series:
Deducting Mortgage Interest FAQs

ppre-refundIf you’re a homeowner, you probably qualify for a deduction on your home mortgage interest. The tax deduction also applies if you pay interest on a condominium, cooperative, mobile home, boat or recreational vehicle used as a residence.

It pays to take mortgage interest deductions
If you itemize, you can usually deduct the interest you pay on a mortgage for your main home or a second home, but there are some restrictions.

Here are the answers to some common questions about this deduction:

1. What counts as mortgage interest?
2. Is my house a home?
3. Who gets to take the deduction?
4. Is there a limit to the amount I can deduct?
5. What if my situation is special?
6. What types of loans get the deduction?
7. What if I refinanced?
8. What kind of records do I need?

What counts as mortgage interest?
Mortgage interest is any interest you pay on a loan secured by a main home or second home.

These loans include:

• A mortgage to buy your home
• A second mortgage
• A line of credit
• A home equity loan

If the loan is not a secured debt on your home, it is considered a personal loan, and the interest you pay usually isn’t deductible.

Your home mortgage must be secured by your main home or a second home. You can’t deduct interest on a mortgage for a third home, a fourth home, etc.

Is my house a home?
For the IRS, a home can be a house, condominium, cooperative, mobile home, boat, recreational vehicle or similar property that has sleeping, cooking and toilet facilities.

Who gets to take the deduction?
You do, if you are the primary borrower, you are legally obligated to pay the debt and you actually make the payments. If you are married and both you and your spouse sign for the loan, then both of you are primary borrowers. If you pay your son’s or daughter’s mortgage to help them out, however, you cannot deduct the interest unless you co-signed the loan.

Is there a limit to the amount I can deduct?
Yes, your deduction is generally limited if all mortgages used to buy, construct, or improve your first home (and second home if applicable) total more than $1 million ($500,000 if you use married filing separately status).

You can also generally deduct interest on home equity debt of up to $100,000 ($50,000 if you’re married and file separately) regardless of how you use the loan proceeds.

For details, see IRS Publication 936: Home Mortgage Interest Deduction.

What if my situation is special?
Here are a few special situations you may encounter.

• If you have a second home that you rent out for part of the year, you must use it for more than 14 days or more than 10 percent of the number of days you rented it out at fair market value (whichever number of days is larger) for the home to be considered a second home for tax purposes. If you use the home you rent out for fewer than the required number of days, your home is considered a rental property, not a second home.
• You may treat a different home as your second home each tax year, provided each home meets the qualifications noted above.
• If you live in a house before your purchase becomes final, any payments you make for that period of time are considered rent. You cannot deduct those payments as interest, even if the settlement papers label them as interest.
• If you used the proceeds of a home loan for business purposes, enter that interest on Schedule C if you are a sole proprietor, and on Schedule E if used to purchase rental property. The interest is attributed to the activity for which the loan proceeds were used.
• If you own rental property and borrow against it to buy a home, the interest does not qualify as mortgage interest because the loan is not secured by the home itself. Interest paid on that loan can’t be deducted as a rental expense either, because the funds were not used for the rental property. The interest expense is actually considered personal interest, which is no longer deductible.
• If you used the proceeds of a home mortgage to purchase or “carry” securities that produce tax-exempt income (municipal bonds) , or to purchase single-premium (lump-sum) life insurance or annuity contracts, you cannot deduct the mortgage interest. (The term “to carry” means you have borrowed the money to substantially replace other funds used to buy the tax-free investments or insurance.).

What kinds of loans get the deduction?
If all your mortgages fit one or more of the following categories, you can generally deduct all of the interest you paid during the year.

• Mortgages you took out on your main home and/or a second home on or before October 13, 1987 (called “grandfathered” debt, because these are mortgages that existed before the current tax rules for mortgage interest took effect).
• Mortgages you took out after October 13, 1987 to buy, build or improve your main home and/or second home (called acquisition debt) that totaled $1 million or less throughout the year ($500,000 if you are married and filing separately from your spouse).
• Home equity debt you took out after October 13, 1987 on your main home and/or second home that totaled $100,000 or less throughout the year ($50,000 if you are married and filing separately). Interest on such home equity debt is generally deductible regardless of how you use the loan proceeds, including to pay college tuition, credit card debt, or other personal purposes. This assumes the combined balances of acquisition debt and home equity do not exceed the home’s fair market value at the time you take out the home equity debt.

If a mortgage does not meet these criteria, your interest deduction may be limited. To figure out how much interest you can deduct and for more details on the rules summarized above, see IRS Publication 936: Home Mortgage Interest Deduction.

What if I refinanced?
When you refinance a mortgage that was treated as acquisition debt, the balance of the new mortgage is also treated as acquisition debt up to the balance of the old mortgage. The excess over the old mortgage balance is treated as home equity debt. Interest on up to $100,000 of that excess debt may be deductible under the rules for home equity debt. Also, you can deduct the points you pay to get the new loan over the life of the loan, assuming all of the new loan balance qualifies as either acquisition debt or home equity debt of up to $100,000.

That means you can deduct 1/30th of the points each year if it’s a 30-year mortgage—that’s $33 a year for each $1,000 of points you paid. In the year you pay off the loan—because you sell the house or refinance again—you get to deduct all the points not yet deducted, unless you refinance with the same lender. In that case, you add the points paid on the latest deal to the leftovers from the previous refinancing and deduct the expense on a pro-rated basis over the life of the new loan.

What kind of records do I need?
In the event of an IRS inquiry, you’ll need the records that document the interest you paid. These include:

• Copies of Form 1098: Mortgage Interest Statement. Form 1098 is the statement your lender sends you to let you know how much mortgage interest you paid during the year and, if you purchased your home in the current year, any deductible points you paid.
• Your closing statement from a refinancing that shows the points you paid, if any, to refinance the loan on your property.
• The name, Social Security number and address of the person you bought your home from, if you pay your mortgage interest to that person, as well as the amount of interest (including any points) you paid for the year.
• Your federal tax return from last year, if you refinanced your mortgage last year or earlier, and if you’re deducting the eligible portion of your interest over the life of your mortgage.

Keep in mind that this is general information designed to help you put these valuable deductions on your radar. Patrick Parker Realty Agents and Realtors are not certified accountants. Please be sure to check with your tax adviser to see if you qualify for a particular credit or deduction.

_____________________________________________________________________


The Patrick Parker Realty Tax Season Blog Series will cover many topics as they relate to real estate and increasing your income tax refund. Such topics will include Home Ownership Tax Breaks, Hidden Tax Deductions, Deductions on Mortgage Interest, Reporting on the Sale of Your Home, Home Purchase Tax Credits and more. In addition, our Blog Series will explore Tax Incentives as they relate to major transitions and lifestyles; Marriage, Birth, Divorce, Death of Spouse, Health Insurance, Caretaking of Dependents, Business Owners, Commuters and more.

Check in to The 
Patrick Parker Realty Blog each Tuesday, Thursday and Saturday through Tax Day for new posts. You can also follow The Patrick Parker Realty Tax Season Blog Series on Facebook and Twitter using #taxseasonblog.

More Info About The Patrick Parker Realty Tax Season Blog Series >
Tax Terms Glossary >
More Tax Aspects of Home Ownership >

For more information about paying taxes on the sale or purchase of your home or any other questions you have about this article please speak with your tax professional or visit www.irs.gov.

 

From the Patrick Parker Realty Tax Season Blog Series
7 Tax Advantages of Getting Married

new-jersey-taxesThere are many good reasons to get married — true love and compatibility being among the best. No one would suggest that you tie the knot simply to acquire the tax blessings of the Internal Revenue Service. But the tax code does provide a few wedding gifts to those who say “I do.”

Kevin O’Brien, who formerly taught in the School of Accountancy graduate program at the University of Denver; certified public accountant; and Valerie Antonioli, a Certified Financial Planner professional and investment adviser, offered tips for making the extended honeymoon a little sweeter when you prepare your tax return.

For years, taxpayers complained about the marriage penalty. This occurred when spouses earned similar salaries, the combination of which pushed the couple into a higher tax bracket than they would have occupied if they were still single. Congress took steps to reduce that penalty, ensuring that the joint tax bill for married couples remains closer to the combined total they would have owed as single taxpayers, Antonioli said. Depending on the incomes, there still can be a marriage penalty. But if the taxpaying spouses have substantially different salaries, the lower one can pull the higher one down into a lower bracket, reducing their overall taxes.

Typically, of course, both spouses would prefer to have good incomes, but if one person has a substantial income and marries someone making little or no money, “that’s golden as far as getting some tax benefits,” said O’Brien, who now is chairman of the Business Ethics and Legal Studies Department at DU’s Daniels College of Business.

1. Your spouse may be a tax shelter
While O’Brien doesn’t advise anyone to seek out a partner specifically because he or she has a business that’s losing money, it’s worth noting that the negative numbers of one person in a marriage can help both spouses. The spouse who’s losing money may not take advantage of some deductions, including those dealing with the house, but the spouse who’s making money may use the loss as a tax write-off. “This is also true of high medical expenses,” O’Brien said.

2. Jobless spouse can have an IRA
A spouse may contribute to an individual retirement account (IRA) even if he or she doesn’t work. Additionally, said Antonioli, the point at which the IRA benefits are phased out based on income are dramatically higher for married couples than they are for single people.

“A taxpayer who couldn’t pay into an IRA when single can use the joint income to fund one and potentially put away thousands of dollars for retirement while receiving substantial tax benefits,” O’Brien said.

3. Couples may “benefit-shop”
If both spouses have benefit packages from their jobs, they can pick the most valuable benefits from the two plans, Antonioli said. So, for example, if spouse can have pre-tax money deposited in an IRA, meaning the deposit reduces his taxable income, and the other spouse can’t, they can put family money into an IRA for the second spouse, too.

The right mixture of benefits from two plans can increase a couple’s tax savings in other ways. Fay mentioned child care as an example. “If they have dependent children, they can benefit from using benefit plans such as dependent care plans,” Fay said in an email. “It is frequently the case that one of them may not have such a plan, but the other one does.”

4. A married couple can get greater charitable contribution deductions
There’s a limit to the charitable contributions that may be deducted in a year, based on income. Having a spouse can raise that limit, Fay said. “If one of them makes very large charitable contributions but doesn’t have income of at least double that amount, the excess contributions are carried over [deducted the following year],” she noted. “In a jointly filed return, they can use the spouse’s income in determining the currently deductible amount. So they save current taxes.”

5. Marriage can protect the estate
Being married can help a wealthy person protect the assets he leaves behind when he dies. Under federal tax laws, you can leave any amount of money to a spouse without generating estate tax, so this exemption protects the deceased’s estate until the spouse dies.

6. Filing can take less time and expense
This one is simple: If the spouses have to file just one tax return, there’s a good chance that it will take less time to assemble the paperwork — at least for the one not doing the taxes — and cost less to have it prepared.

7. Tax downsides to marriage
There are tax benefits to nuptials, but some drawbacks exist as well. They don’t mean you shouldn’t get hitched; just consider them unwelcome gifts, along with that third toaster oven and the cheap fondue set.

First, once you sign the joint return, you are fully responsible for every number that’s in it. If your spouse fudges a figure, you’re equally liable for the consequences. The University of Denver’s Kevin O’Brien noted that you aren’t responsible for your spouse’s mistakes or deliberate omissions if they happened in the years before you married or if you can prove that you didn’t know about them.

Also, it might be harder to reach the higher minimum percentages of income necessary to be able to deduct medical or miscellaneous expenses, given the combined income, unless one or both of you had significant expenses. And finally, if there’s a garnishment for an unpaid loan or child support against a spouse, a refund could be delayed or blocked, O’Brien said.

Keep in mind that this is general information designed to help you put these valuable deductions on your radar. Patrick Parker Realty Agents and Realtors are not certified accountants. Please be sure to check with your tax adviser to see if you qualify for a particular credit or deduction.
____________________________________________________________________________________

Follow The Patrick Parker Realty Tax Season Blog Series on Facebook and Twitter using #taxseasonblog.

Check back in with the Patrick Parker Realty Blog each Tuesday, Thursday and Saturday for more Tax Season Blog Series’ Posts and sign up for the monthly Patrick Parker Realty eNewsletter to have updates delivered to your inbox.

The Blog Series will cover many topics such as How do I qualify for a home seller break?, How do I qualify for a home buyer break?, Do I have to report the home sale on my return?, What is the gain on the sale of my home?, What Are Home Renovation Tax Credits?, Deducting Mortgage Interest, Taking the First-Time Homebuyer Credit, How to Avoid Taxes on Canceled Mortgage Debt, Tax Incentives as they relate to Life’s biggest transitions, such as Marriage, the Birth of a Baby, Divorce, or the death of a Spouse and much more. New posts in this Blog Series will be published twice weekly.

More Info About The Patrick Parker Realty Tax Season Blog Series >
Tax Terms Glossary >
More Tax Aspects of Home Ownership >

For more information about paying taxes on the sale or purchase of your home or any other questions you have about this article please speak with your tax professional or visit www.irs.gov.

 

From the Patrick Parker Realty Tax Season Blog Series
Tax Exemptions and Deductions for Families

new-jersey-taxesAs a family, you may be able to save more on your taxes than a single person can. Once you discover all the deductions that are available to you, you’ll be able to save more money this year, and plan better for your family’s future.

If you want to make sure you’re taking advantage of every deduction that you’re entitled to, this article is for you. We’ll explain which deductions are available to your family, and also point out some deductions that many families overlook each year.

Tax exemptions for you and your dependents
An exemption is an amount of money you can subtract from your Adjusted Gross Income, just for having dependents. Personal and dependent exemptions for yourself and qualifying family members reduce the amount of income on which you will be taxed. (in effect, these exemptions are the same as deductions).

In 2014, you can claim a $3,950 exemption for each qualifying child, which may include your child or stepchild, foster child, sibling or step-sibling, or descendants of any of these, such as your grandchild. To qualify for the exemption, the child must live with you more than half of the year and be under 19 at the end of the year, or under 24 and a full-time student for the year (defined as attending school for at least part of five calendar months during the year).

You no longer have to show that you provide more than half of the child’s support, as was required under the rules in effect a few years ago. However, to claim an exemption the child cannot provide more than half of his or her own support.

There is no gross income test for a qualifying child. That means you can claim an exemption even if the child has a fair amount of income, as long as the child doesn’t provide over half of his or her own support, as outlined above.

You and your spouse are also each entitled to a $3,950 personal exemption in 2014.

Example of personal and dependent exemptions
For a married couple with three children, the total exemption deduction for 2014 is $19,750 ($3,950 x 5). If the marginal income tax rate for this family is 25 percent, the five exemptions save $4,875 in taxes.

Other relatives
Many families provide homes for relatives such as parents or grandparents, or support relatives who do not necessarily live with them. If you’re in this situation, you can claim a dependent exemption for a qualifying relative who is not a qualifying child, as long as the supported person meets all five of these criteria:

1. The person is either a relative or a full-time member of your household.
2. He or she is a citizen or resident of the U.S. or a resident of Canada or Mexico.
3. He or she did not file a joint income tax return with anyone else.
4. You provided over half of his or her support.
5. The person in question has less than $3,950 of gross income in 2014.

If your child is not a qualifying child because he or she does not meet the age/student test or the residence test, you may still be able to claim an exemption for the child as your qualifying relative, but only if he or she has gross income under $3,950 for 2014, and you provide more than half of his or her support.

Who’s a relative?
A person who has lived with you for the entire year as a member of your household can meet the definition of a qualifying relative even if he or she is not actually related to you by blood or marriage. But if the person did not live with you for the entire year as a member of your household, the nature of the relationship becomes important.

Here’s a list of people considered to be relatives by virtue of blood or marriage:

  • Children, grandchildren or stepchildren
  • Siblings, including half or step-siblings
  • Parents, grandparents or any other direct ancestors
  • Stepparents
  • Aunts or uncles
  • Nieces or nephews
  • Fathers-in-law, mothers-in-law, sons-in-law, daughters-in-law, brothers-in-law or sisters-in-law

There are special rules for persons receiving support from two or more individuals and for children of divorced or separated parents. If you are in this situation, read IRS Publication 504: Divorced or Separated Individuals.

Only one exemption per person
The same person cannot be claimed as a dependent by more than one taxpayer, nor can a child who can be claimed as a dependent on his or her parents’ return claim a personal exemption on his or her own return.

To claim anyone as a dependent, you must enter his or her Social Security number, or the equivalent, on your tax return. Using that number, the IRS software can tell fairly easily if two returns claim the same dependent, so make sure that you’re entitled to the deduction before you prepare your return.

More information on exemptions
For more information, see IRS Publication 501: Exemptions, Standard Deduction and Filing Information.

Medical expenses
You can deduct any expense you pay for the prevention, diagnosis or medical treatment of physical or mental illness, and any amounts you pay to treat or modify any part or function of the body for health—but not for cosmetic purposes. (So you can deduct the cost of LASIK eye surgery to correct your vision, but not the BOTOX® Cosmetic injections to smooth the wrinkles around your eyes.) You can also deduct the cost of transportation to the locations where you can receive this kind of medical care, your health insurance premiums, and your costs for prescription drugs and insulin.

Medical expenses are only deductible if you itemize, and only if they exceed 10 percent of your Adjusted Gross Income. You can only deduct the medical and dental expenses that exceed those percentages.

There is a temporary exemption from Jan. 1, 2013 to Dec. 31, 2016 for individuals age 65 and older and their spouses. If you or your spouse are 65 years or older or turned 65 during the tax year you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income. The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016.

Beginning Jan. 1, 2017, all taxpayers may deduct only the amount of the total un reimbursed allowable medical care expenses for the year that exceeds 10% of your adjusted gross income.

Example: Emma’s Adjusted Gross Income was $100,000, and she spent $8,000 on medical expenses. She and her spouse were both under age 65 in 2014. Because her expenses did not exceed 10 percent of her AGI, she cannot take the deduction for the amount above $7,500. Her deduction is $0.

Qualified long-term care expenses are treated as medical expenses subject to the 10 percent of AGI floor. Medical expenses also include the premiums you pay for qualified long-term care insurance. However, the amount of premium you can deduct is limited based on your age. For 2014, deductible premium amounts range from $360 to $4,550, depending on the covered person’s age at year end.

There is an exception for qualifying health insurance premiums paid by eligible self-employed individuals. Such costs can be deducted as adjustments to income which means eligible taxpayers can deduct 100 percent of their qualifying health insurance premiums on page 1 of Form 1040. (In other words, this write-off is available whether you itemize or not.)

Deducting medical expenses for someone else
You can deduct medical costs you pay directly to medical service providers for another person according to the following rules:

If you pay medical expenses for someone you do not claim as a dependent on your income tax return, you can deduct those expenses if:

  • He or she either lived with you for the entire year as a member of your household.
  • He or she is related to you (as described in the section Who’s a Relative).
  • He or she was a U.S. citizen or legal resident, or was a resident of Canada or Mexico, for some part of the year.
  • You provided over half of his or her support for the year.

Note that these rules are slightly less stringent than those for the dependency exemption.

Example: it’s possible that you can deduct medical expenses you paid for a parent in 2014, even though you can’t claim the parent as a dependent because his or her gross income exceeded $3,950.

  • If you paid a person’s medical bill this year for an expense incurred last year, and that person was your dependent last year, you can deduct the expenses on this year’s return even if he or she isn’t your dependent this year. The key factor is that the person was your dependent when the medical services were provided.
  • If you’re divorced and pay medical expenses for your child, but don’t claim him or her as a dependent because you are the non-custodial parent, you can still deduct those expenses. This assumes that you would qualify to take a dependency exemption for your child is you were the custodial parent.
  • You can deduct medical expenses that you pay for your spouse. What most people don’t know is that you can claim medical expenses for your spouse’s medical treatments that occurred before you were married if you paid those bills after your marriage. The rule is that you must be married either at the time of the medical treatments, or at the time the bills are paid.

For a complete list of qualified medical expenses, see IRS Publication 502: Medical and Dental Expenses.

Education expenses
In most cases, you can’t deduct the full amount of your child’s educational expenses because they are considered to be personal expenses. However, the following credits may help ease your tax burden:

  • Deduction for college tuition expenses:
    This deduction is available to you regardless of whether you itemize your deductions. The maximum deduction is $4,000. The maximum deduction drops to $2,000 and then disappears completely as income rises. Expenses eligible for the deduction are higher education tuition and mandatory enrollment fees. These same expenses are also eligible for the American Opportunity tax credit but you can’t take both in the same year.
  • American Opportunity and Lifetime Learning Credits:
    Available only for 2009 – 2017, the American Opportunity Credit is a tax credit of up to $2,500 for all four years of a college education. Single taxpayers with modified adjusted gross income (MAGI) of $80,000 or less and married taxpayers with MAGI of $160,000 or less are eligible. If the American Opportunity credit is not available, the Lifetime Learning credit might be allowed. It applies to tuition and mandatory enrollment fees for just about any post-secondary course. It is 20 percent of the first $10,000 of eligible expenses to a maximum of $2,000. MAGI limits are $60,000 for single taxpayers and $120,000 for married taxpayers filing jointly. For more information on higher education tax breaks, see IRS Publication 970: Tax Benefits for Education.
  • Education Savings Accounts:
    Education Savings Accounts (ESAs) allow up to $2,000 each year to be contributed for each child under age 18. You can save a fairly sizable amount over several years. ESA contributions aren’t tax-deductible, but you can withdraw your investment and earnings tax-free as long as you use the funds to pay for college costs. If your child chooses not to attend college, you can transfer the balance to another member of the family. You can use the money from an ESA to pay for elementary and high school education, as well as for college educational costs. The ability to make ESA contributions is phased out for higher-income taxpayers.
  • Student loan interest:
    Interest on loans you take out to pay for college or vocational school expenses can also be deductible. The student loan interest deduction limit is $2,500 for qualified student loans, but the deduction is phased out for higher-income taxpayers. For 2014, the phase out begins at $120,000 on joint returns and at $60,000 for unmarried individuals.

Other ideas to consider

  • If you are the sole proprietor of your own business, consider employing your child (under the age of 18) for certain tasks. You can pay your child up to $6,200 in wages (the maximum standard deduction for the single person in 2014) without incurring income taxes and most employment taxes. The wages would be tax-free to your young employee and you could deduct the wages as a business expense on your own tax return.
  • If you have a child going to college in another area, consider purchasing a house or a condominium for your child to live in. By treating the house or condo as a second home, you can deduct the mortgage interest and real estate taxes on your own tax return.

Keep in mind that this is general information designed to help you put these valuable deductions on your radar. Patrick Parker Realty Agents and Realtors are not certified accountants. Please be sure to check with your tax adviser to see if you qualify for a particular credit or deduction.

____________________________________________________________________________________


Follow The Patrick Parker Realty Tax Season Blog Series on Facebook and Twitter using #taxseasonblog.

Check back in with the Patrick Parker Realty Blog each Tuesday, Thursday and Saturday for more Tax Season Blog Series’ Posts and sign up for the monthly Patrick Parker Realty eNewsletter to have updates delivered to your inbox.

The Blog Series will cover many topics such as How do I qualify for a home seller break?, How do I qualify for a home buyer break?, Do I have to report the home sale on my return?, What is the gain on the sale of my home?, What Are Home Renovation Tax Credits?, Deducting Mortgage Interest, Taking the First-Time Homebuyer Credit, How to Avoid Taxes on Canceled Mortgage Debt, Tax Incentives as they relate to Life’s biggest transitions, such as Marriage, the Birth of a Baby, Divorce, or the death of a Spouse and much more. New posts in this Blog Series will be published twice weekly.

More Info About The Patrick Parker Realty Tax Season Blog Series >
Tax Terms Glossary >
More Tax Aspects of Home Ownership >

For more information about paying taxes on the sale or purchase of your home or any other questions you have about this article please speak with your tax professional or visit www.irs.gov.

From the Patrick Parker Realty Tax Season Blog Series
Tax Guidance for Business Owners and Home Ownership and Investing

new-jersey-taxesThis blog post continues with more tax tips to assist Business Owners, Homeowners and Investors.

Business Ownership

  1. Shift income to your child’s lower tax bracket by paying your children reasonable wages to help you with age-appropriate jobs in your business. A child may be able to earn up to $6,200 in 2014 without paying federal income taxes.
  2. Deduct the health insurance premiums you pay for your entire family. If you employ your spouse in your business, you may deduct the premium as an employee benefit.
  3. Deduct an office in your home, if you regularly and exclusively use part of your home to perform administrative or managerial activities for your business. You may be able to deduct a portion of utilities, rent or mortgage interest, depreciation, cleaning, and the like.
  4. Read more. Subscriptions, books, and other materials related to your field are tax-deductible items. Ditto conferences, seminars, and courses related to your work.

Home Ownership and Investing

  1. Own your own home. Mortgage interest and property tax deductions will save you money on your taxes, and saving to buy a home is a wonderful use for your money after you have contributed the maximum to tax-advantaged retirement plans.
  2. Deduct points paid on your home loan. Points paid when you acquire your home are deductible in that year, and points paid to refinance a loan must be written off over the length of the loan (1/30 each year on a 30 year loan). When you refinance again, you can write off the remaining unamortized points. When you sit down to do your taxes make sure you have records of points paid.
  3. Contribute to your IRA early in the year so your money has longer to grow. Although you have until April 15 of the following year to contribute, your money will have 15-1/2 more months to grow if you contribute on January 1 of the previous year.
  4. Deduct personal bad debts. If your best friend borrows money and then skips town, you may be able to deduct this non-business bad debt as a short-term capital loss on your tax return up to $3,000.

Keep in mind that this is general information designed to help you put these valuable deductions on your radar. Patrick Parker Realty Agents and Realtors are not certified accountants. Please be sure to check with your tax adviser to see if you qualify for a particular credit or deduction.
____________________________________________________________________________________

Follow The Patrick Parker Realty Tax Season Blog Series on Facebook and Twitter using #taxseasonblog.

Check back in with the Patrick Parker Realty Blog each Tuesday, Thursday and Saturday for more Tax Season Blog Series’ Posts and sign up for the monthly Patrick Parker Realty eNewsletter to have updates delivered to your inbox.

The Blog Series will cover many topics such as How do I qualify for a home seller break?, How do I qualify for a home buyer break?, Do I have to report the home sale on my return?, What is the gain on the sale of my home?, What Are Home Renovation Tax Credits?, Deducting Mortgage Interest, Taking the First-Time Homebuyer Credit, How to Avoid Taxes on Canceled Mortgage Debt, Tax Incentives as they relate to Life’s biggest transitions, such as Marriage, the Birth of a Baby, Divorce, or the death of a Spouse and much more. New posts in this Blog Series will be published twice weekly.

More Info About The Patrick Parker Realty Tax Season Blog Series >
Tax Term Glossary >
More Tax Aspects of Home Ownership >

For more information about paying taxes on the sale or purchase of your home or any other questions you have about this article please speak with your tax professional or visit www.irs.gov.

From the Patrick Parker Realty Tax Season Blog Series
Tax Breaks and Home Ownership

new-jersey-taxesHome ownership brings with it not only many trips to home improvement stores, but also a slew of tax breaks. It’s up to you to take full advantage of the write-offs available to you.

This post covers:

  • Mortgage Interest
  • Points
  • Real Estate Taxes
  • Certain Mortgage Interest Payments
  • Home Improvements
  • Home Expenses

Here’s what you can and can’t deduct:

Mortgage interest
For most people, the biggest home-related deduction is for mortgage interest. How do you figure out how much you’ve paid in mortgage interest during the year?

You should receive a statement from your lender by the end of January listing the mortgage interest you paid during the previous year. This statement will be labeled Form 1098. It may be attached to, or part of, your monthly mortgage statement, so be sure that you study your your January statement carefully to identify any portion that may be labeled as Form 1098. The amount shown as interest paid on Form 1098 is the amount you deduct on your tax return.

Where do I take this deduction?
Fill out Schedule A, Itemized Deductions, to take a deduction for mortgage interest.

  • If you received Form 1098 reporting the amount of mortgage interest you paid for the year, record your interest deduction on Line 10.
  • If you didn’t receive Form 1098, use Line 11 instead.

If your home loan is with a private party (for example, with the person from whom you bought the home), you may not receive a statement of interest paid even though your mortgage holder should complete one for you. You can still deduct the interest as long as your loan is secured by your home.

Report your lender’s name, address and Social Security number on the lines next to Line 11. (You should have been given this information during the closing of your home purchase). Remember that you have to be liable for repayment of the loan to deduct mortgage interest. If you pay your son’s or daughter’s mortgage to help them out, for example, you cannot deduct the interest unless you co-signed the loan.

What about late charges?
You can deduct a late payment charge as home mortgage interest as long as the charge was not for a specific service you received in connection with your mortgage loan.

What about a prepayment penalty?
If you pay off your home mortgage early and you’re required to pay a prepayment penalty, you may deduct that penalty as home mortgage interest as long as the charge was not for a specific service you received in connection with your mortgage loan.

For more information on mortgage interest, see IRS Publication 936: Home Mortgage Interest Deduction.

Points
When you buy a house, you often have to pay points to the lender to get your mortgage. These points can usually be deducted as prepaid interest. Other terms for points are:

  • Loan origination fees
  • Maximum loan charges
  • Loan discount
  • Discount points

You may deduct any points you pay, or points your seller paid on your behalf, in the year in which you pay the points, if you meet all of these requirements:

  • Your loan is secured by your primary residence (the one you live in most of the time).
  • Paying points is usual for your area.
  • The amount of the points isn’t out of line for your area.
  • You use the cash method of accounting for expenses (you most likely do). Using the cash method means you report income in the year you receive it and deduct expenses in the year you pay them.
  • The loan was used to buy, improve or build your home.
  • The points are computed as a percentage of the loan principal.
  • The points are clearly delineated on your settlement statement.
  • You put cash into your home purchase in an amount at least equal to the points you (and the seller) were charged. If you and the seller were charged a total of $3,000 in points, for example, you pass this test as long as your down payment was at least $3,000.

Some points do not meet these criteria. They may still be deductible, but you have to deduct them over the life of the loan.

  • Points paid for refinancing generally can only be deducted over the life of the new mortgage. If you pay $2,000 in points to refinance a 30-year mortgage, for example, you’d deduct that amount over 30 years—about $67 a year. It’s up to you to remember to take this deduction each year.
  • Points you pay on loans secured by your second home also can be deducted only over the life of the loan.

“Points” charged for specific services, such as preparation costs for a mortgage note, appraisal fees or notary fees, are not interest and cannot be deducted.

For more details on deducting points, see IRS Topic 504: Home Mortgage Points.

Real Estate Taxes
You can deduct annual taxes based on the assessed value of your property.

Where do I find how much I’ve paid in property taxes?

  • Your mortgage interest statement may list the amount of real estate taxes you paid if you use an escrow or impound account with your lender to cover real estate taxes and homeowner insurance.
  • If your real estate taxes aren’t included in escrow payments made with your mortgage payments, look through your cancelled checks to figure out how much you paid for property taxes during the year.
  • Be sure to pick up any real estate taxes included on your settlement or closing statement as well.

Caution: Don’t deduct your payments into your escrow account as real estate taxes. Your deposits are simply money put aside to cover tax payments. You should deduct only the actual property tax payments made from the account by your lender during the year.

Where do I take the deduction?
If you itemize, deduct your real estate taxes on Line 6 of Schedule A.

What can’t I deduct as property taxes?
You can’t deduct charges for services to a specific property or for specific people even if the payments are made to the taxing authority in your area.

Examples include:

  • A unit fee for the delivery of a service (such as water delivery).
  • A charge for a residential service, such as trash collection
  • A flat charge paid for a single service provided to you. specifically by your local government.
  • Amounts you pay for local benefits that tend to increase the value of your property, such as the construction of streets, sidewalks or water and sewer systems. But you can deduct whatever you pay for assessments for repairs or maintenance.

Certain Mortgage Interest Payments
Through 2014, if you pay private mortgage insurance (PMI) premiums on a qualifying policy issued after 2006, you can generally deduct the premiums as additional mortgage interest. Claim the deduction on Line 13 of Schedule A.

The full deduction can only be taken if your Adjusted Gross Income (AGI) is $100,000 or less ($50,000 if you use married filing separate status). The deduction is phased out for incomes greater than this. The amount of PMI that you pay for the year can be found on Form 1098, which you receive from your mortgage lender.

Mortgage insurance, which protects the lender if you default, should not be confused with more common homeowner’s or fire insurance.

Home Improvements
Save receipts and records for all improvements you make to your home, such as landscaping, storm windows and fencing. You can’t deduct these expenses now, but when you sell your home the cost of the improvements is added to the purchase price of your home to determine the cost basis in your home. This will reduce any potential taxable gain that you may have from the sale of your home.

Home expenses you can’t deduct
A number of significant costs of home ownership are not deductible, including:

  • Homeowner’s insurance premiums
  • Fire insurance premiums
  • FHA mortgage-insurance premiums
  • Principal payments made on your mortgage
  • Title or mortgage insurance
  • Utilities, such as gas, electricity, water or trash collection
  • Most settlement costs on your closing or settlement statement, including transfer taxes and Mortgage Recording Taxes
  • Homeowner’s association dues and fees

Keep in mind that this is general information designed to help you put these valuable deductions on your radar. Patrick Parker Realty Agents and Realtors are not certified accountants. Please be sure to check with your tax adviser to see if you qualify for a particular credit or deduction.
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The Blog Series will cover many topics such as How do I qualify for a home seller break?, How do I qualify for a home buyer break?, Do I have to report the home sale on my return?, What is the gain on the sale of my home?, What Are Home Renovation Tax Credits?, Deducting Mortgage Interest, Taking the First-Time Homebuyer Credit, How to Avoid Taxes on Canceled Mortgage Debt, Tax Incentives as they relate to Life’s biggest transitions, such as Marriage, the Birth of a Baby, Divorce, or the death of a Spouse and much more. New posts in this Blog Series will be published twice weekly.

More info about the Patrick Parker Realty Tax Season Blog Series >
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More Tax Aspects of Home Ownership >

For more information about paying taxes on the sale or purchase of your home or any other questions you have about this article please speak with your tax professional or visit www.irs.gov.


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