One of the greatest perks about owning your own home versus renting is all of the tax deductions. In fact, owners who itemize their taxes can deduct 100 percent of their mortgage interest and property taxes from their income tax returns.
That means that if you’re in a 28% tax bracket, Uncle Sam effectively subsidizes about a third of your borrowing costs or more, making your home more affordable or allowing you to buy a larger home than you could have otherwise.
Also, while a good portion of your closing costs are tax deductible, all of the money you have left over after you sell your Fairfax VA home are exempt from income taxes.
Today I’m going to give you five home-related income tax tips that will help you maximize how much money you get back from Uncle Sam this year if you bought a Fairfax Va homes for sale.
1. You Must Itemize Your Return to Claim Your Deductions
About 40 percent of homeowners do not get the most out of their home owner tax advantages because they fail to itemize their income taxes.
While it may be tempting to simply take the standard deduction, you might actually get higher tax returns if you take the home owners deductions. So use a tax program like Turbo Tax or talk with your mortgage company to see which option will result in the lowest tax bill (or the highest tax refund) for you.
2. Plan Ahead and Be Strategic When Taking a Home Office Deduction
The average home office deduction is $3,686, according to the Small Business Administration. To find out how much you’ll save on your taxes by writing off your home office, multiply $3,686 by your tax bracket. Talk about a lot of money!
However, you should know that the space you designate as your home office can’t be exempted from capital gains tax when you sell your home later. The $250,000 (single)/ $500,000 (married filing jointly) income tax exemption for capital gains is only good on your personal residence, not the area you’ve designated as a home office on your tax forms.
Talk with your tax preparer to see which option will serve you better as a Fairfax VA home owner.
3. Tax Relief for Loan Modifications, Short Sales and Foreclosures Will Only Last Through 2012
The year 2011 is projected to be the peak year for foreclosures. If you’re a distressed home owners who is considering a short sale, loan modification or foreclosure, know that any mortgage balance that is erased by one of these actions is taxed as what the IRS calls Cancellation of Debt Income, or CODI.
However, the Mortgage Debt Forgiveness Relief Act of 2007 states that the IRS cannot charge income taxes on CODI incurred through a short sale, loan modification or short sale through 2012 in most cases.
Thus, if you’re considering one of these options, act now to take full advantage of the Mortgage Debt Forgiveness Relief Act.
4. Project the Income Tax Consequences of a Refinance or Property Tax Appeal
With property values down all across the country, thousands of home owners are applying for a lower property tax bill.
While this has the potential to significantly cut your costs as a Fairfax VA home owner, you should know that the items you’re trying to minimize – property taxes and mortgage interest – are also what brings you the greatest tax benefits.
So before you make any changes, see which option will benefit you the most financially in the long run.
5. Don’t Forget Those Closing Costs
If you bought or refinanced your home in 2010, you may be eligible for tax deductions on your closing costs, even if the seller paid for them.
Closing costs include any origination fees or discount points that were paid to your mortgage lender at closing . To find out how much that figure is, simply check out your HUD-1 settlement statement or ask your Fairfax VA real estate agent.
Thierry is a Real Estate Agent at RE/MAX Premier, and Host of Talk Radio’s, ‘Inside Real Estate’
Phone: (703) 322-0600.
Thierry is an advocate for Homeowners in Distress. Thierry has made it his personal mission to help as many people as possible avoid foreclosure and keep their home.
Thierry Roche specializes in loan modifications and short sales in Fairfax Virginia. Fairfax Loan Modification Help. Fairfax Short Sales. Fairfax Short Sale Realtor. Fairfax County Short Sale Realtor. Fairfax VA Short Sales. Fairfax Realtor.
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