Everyone's Favorite Time of Year: Tax Time!
By Chris Petry
Yes, that headline was penned with definite sarcasm. Did you know there are people who actually enjoy filing their taxes? I’m going to assume they share a psychological profile with the kinds of people who enjoy playing Patty Cake with bear traps and cuddling with porcupines, but they do exist. Regardless of how any of us feel about the matter, truth is, we don’t really have much of a choice. The deadline for filing or requesting an extension is Tuesday, April 15th.
While we’re on the subject of people bearing personality traits that cause anxiety; ever meet one of those people who always waits until the last minute to file? Is it procrastination? Turns out, according to IRS.gov, that’s one of the main reasons. People put off filing because the very thought of it sends them into a panic. There are also more understandable, often unfortunate, reasons that might affect how or when someone is able to file, such as the loss of a spouse or the dissolution of their marriage. Finally, there’s good old disorganization. Some people are still waiting on or have lost or misplaced important documents such as W-2s, 1099s, Schedule K-1s and receipts that might be critical to calculating their deductions.
Fortunately for homeowners, there are special deductions that can save you a lot of cash. Read on for some of the things to consider when filing your return. Already filed? Keep this list on hand for next year.
General real estate taxes
If you choose to itemize your tax return on Schedule A of Form 1040, you can deduct property taxes paid on both your primary residence and any additional homes, such as investment properties, you may own. It’s important to note that, according to TurboTax, you’re not permitted to deduct any delinquent tax that you accepted from a previous owner in the acquisition of the property.
Mortgage interest
If you file a Form 1040 or 1040-SR and itemize your deductions on Schedule A, you can deduct interest paid on your loan for the filing year. However, the deduction is only good on the first $750,000 of indebtedness. Which shouldn’t be a problem for most people seeing as the median home sale price in Greater Pittsburgh, according to Zillow, is around $222,451.
Points Paid
Points, in case you’re not familiar, are prepaid interest costs. Each point paid lowers the interest rate on your monthly payment. They’re essentially a loan discount. Fortunately, they’re deductible ratably over the term of the loan. Points paid on new mortgages, a refinanced existing mortgage or loans secured for a second home all qualify.
Energy Credits
If you make improvements which increase the energy efficiency of your home, you can deduct the expenses incurred. As long as you take those deductions in the year in which the work was completed and the expenses accrued. What types of repairs qualify? According to Irs.gov:
Additionally, you benefit from the Residential Clean Energy Credit if you have new expenses related to one of the following:
The amount of credit you can claim is a percentage of the total cost of repairs or installations for the given tax year. For more information, click here.
Investment Properties
If you collect rental income from investment properties, you can deduct rental expenses such as mortgage interest, property tax, operating expenses, depreciation and repairs. Advertising expenses, interest, utilities and insurance related to the rental unit are also deductible. However, you cannot deduct expenses related to updates or improvements alone. The deductions only apply to the “betterment, restoration or adaption” of existing systems and structures. The cost of improvements can be recovered through depreciation.
It goes without saying, if you have inquiries about items featured on our list, it’s best to meet with a certified tax professional for clarification. Being a homeowner comes with its share of joys and… uh… not joys? Fortunately, your investment provides leverage to lighten the burden come tax time. You might as well see what you qualify for and make the best of said investment. Until next year, let’s all just pretend taxes aren’t a thing again. That’s real peace of mind!
