With taxes due April 15, it’s important to do tax returns properly, especially if you do it yourself.
Tax planning is a very important part of the financial planning process. If you understand credits and deductions, you can save potentially thousands of dollars. If you own a home, you could qualify for great tax breaks.
Visit artofthinkingsmart.com for more tax-planning tips, or consult the IRS website or a tax professional for more information.
* Mortgage Interest Paid: On a mortgage up to $1 million, you can deduct the interest on Schedule A (Form 1040) of your personal taxes. Your lender should provide the interest statement.
* Point Paid: You can deduct the points paid for a mortgage loan. You also can deduct them if you refinanced your home, but it must be done over the life of the mortgage.
* Private Mortgage Insurance (PMI): If you pay PMI for your primary home or a non-rental second home, you may be able to deduct the PMI premiums for the current tax year.
* Property Taxes: You can deduct state and local property taxes as long as they are based on the assessed value of the property. If you have money in escrow for the purpose of paying taxes, you cannot deduct it until the money is actually taken out for payment purposes. If you receive a partial refund of your property taxes, the deduction amount will be reduced accordingly.
* Home Equity Loan Interest: The interest on up to $100,000 for a home equity loan or home equity line of credit may be deductible, regardless of the reason for the loan.
* Selling Costs: If you sold a home in 2012, you may be able to reduce your income tax by the selling cost amount. These costs can include repairs, title insurance, advertising expenses and broker’s fees. Selling costs are deducted from your gain on the sale.
* Home Improvement and Home Building Costs: If you made any home improvements to increase the chances of selling within 90 days of the sale, you can deduct the repair costs. If you took out a loan for the improvements, you also may deduct the interest paid, as long as the loan is solely used for adding value through capital improvements. New flooring or painting is not considered improvements, while adding an extra room, installing a water heater or building a pool are. If the loan is to build a new home, the interest also can be deductible. The loan must be related to a “qualified” home, which means it is your primary residence or a personal vacation home. The deduction is only good for the first two years, regardless of how long it takes to build.
* Home Office: With the increase of those working from home, you can deduct from your taxes home office costs related to insurance, repairs and depreciation. You only can claim this deduction if the space in the home is used exclusively and regularly as your principal place of business or a place you meet with clients or customers, or storing items for your business (inventory, equipment, etc).