Write-offs to consider on my Taxes – MUST READ.

  • 8 years ago

Tax season is here, and not all write-offs are as obvious as others. According to Michael Gillen, director of the Tax Accounting Group at a Philadelphia-based law firm, Duane Morris, “There are a lot of overlooked deductions” aside from property taxes and mortgage interest. A few areas you may overlook include, prorated real estate tax, prepaid interest, tax credits and points.

Prorated real estate taxes ensure that sellers and buyers only pay property taxes on a property for the days in which each party owned the home. This means if you purchased a home in August, and the seller already paid the annual property taxes of $50,000 in February, you’d have to reimburse half, $25,000, at closing. The $25,000 is a tax write-off that people forget to claim.

Scott Haislet, a certified specialist in taxation law and certified public accountant in private practice in Lafayette, California suggests paying the second half of your property taxes this year instead of next year. In some states, including California, this “year-end tax planning tool” enables you to enjoy the tax deduction this year, as long as you aren’t subject to the Alternative Minimum Tax.

Next is prepaid interest. “Lenders usually want borrowers to remit mortgage payment on the first of each month. If you close on the 10th, the lender wants you to prepay 20 days of interest,” says Mr. Gillen.  

Source: Mansion Global

 

While “you can’t pay six months ahead because you don’t get to deduct interest until it accrues,” prepaid interest is deductible for one month, Mr. Gillen explains.

Mr. Haislet advises you first to make sure you are eligible to deduct the interest.  He notes, “Not all interest is deductible,” and due to the federal home acquisition indebtedness rule, anything beyond $1 million aggregate in mortgage interest does not qualify.

According to  Mr. Gillen, “Tax credits are a super deduction because they’re dollar-for-dollar tax savings.” Thanks to the Residential Energy Efficient Property Credit, homeowners can receive a 30% tax credit on the installation of qualified solar water heaters, geothermal heat pumps, solar electric systems, small wind energy property and fuel cell property. That means that the $100,000 wind turbine system you are considering installing on your lakefront property would result in “a $30,000 tax refund from the IRS.”

Points, also known as loan charges or loan origination fees, are paid to the lender to finance the purchase of a primary or secondary residence, with each point representing 1% of the loan amount. For example, 4 points paid on a $1 million mortgage is $40,000 to the lender. Mr. Gillen reminds us, “Those points are deductible, provided the mortgage is secured by the home.” This means that in the event of default, the house is used as collateral.

When taking this deduction, keep in mind that it only applies in the year the points are paid for the primary home. In the case of points paid on the purchase of a second home, they are deducted over the life of the loan.

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You can find more helpful information at FreddieMac.com.

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