Get Real: ‘Tis the Season for Tax Breaks

Now that February has arrived,
many of us are pulling together our documents in preparation for April 17, the
date federal taxes are due this year. For those who have recently bought or
sold a home, there are a number of tax deductions that may be available.

Real estate broker commissions,
title insurance, legal fees, advertising costs, administrative costs, and
inspection fees are all considered selling costs and may be used to reduce
one’s taxable capital gain by the amount of the selling costs. That could
result in a big savings depending on the final sale price.

Interest that is paid on a
mortgage is also tax-deductible, within limits. A married couple filing jointly
can deduct all their interest payments on a maximum of $1 million in mortgage
debt secured by a first or second home.

Buyers may also be able to
deduct some of the interest they paid on a home equity loan or similar line of
credit.

One deduction that many buyers
often overlook is points. Points or origination fees on a home loan that were
paid during the purchase of a home are generally tax-deductible in full for the
year in which they were paid.

Refinanced mortgage points are
also deductible but only over the life of the loan – not all at once.
Homeowners who refinance can immediately write off the balance of the old
points and begin to amortize the new.

If your lender required private
mortgage insurance, the PMI premiums are tax-deductible for mortgages taken out
from 2007 through 2011. Making
improvements to property prior to the sale, or once one moves in, might qualify
for an interest deduction on your home-improvement loan. Qualifying capital
improvements are those that increase your home’s value, prolong its life, or
adapt it to new uses, such as adding a porch or installing energy-efficient
windows.

Many times during a sale, the
seller will send the local tax collector’s office a check for real estate taxes
prior to the closing. In many circumstances, however, the buyer will pay a
pro-rated portion of the taxes for the year at closing. This tax deduction also
gets overlooked.

For those working from home and
using a room exclusively for business purposes may be able to deduct home costs
related to that portion, such as a percentage of insurance and repair costs, as
well as depreciation.

In some instances, if you have
moved because of a new job, moving costs may be deducted. These can include
travel or transportation costs, expenses for lodging, and fees for storing your
household goods.

Every year the tax laws change
and certain tax deductions become available while others phase out. Just as you
use a professional REALTOR to help you with the complications of buying and
selling your homes, you should seek out a professional tax consultant to
prepare your taxes and find those tax breaks!

* Jim DeFrank and Beth Alois can be reached at 610-388-3700. Prudential
Fox & Roach is an independently owned and operated broker member of BRER
Affiliates Inc. Equal Housing Opportunity.

Comments

comments

Leave a Reply

You must be logged in to post a comment.