2019 – 8 new laws passed favoring homeowners.

Assembly Bill 1772 – Extends from 24 months to 36 months the period of time within which an insurance policyholder is entitled to collect full replacement benefits under a replacement cost fire insurance policy.

Assembly Bill 1800 – Prohibits, in the event of a total loss, a residential property insurance policy from limiting or denying payment based on the fact that the policyholder has chosen to rebuild or purchase a home at a new location.

Senate Bill 824 – Prohibits an insurer from canceling or refusing to renew a homeowner’s insurance policy for one year from the date of a declaration of emergency and requires insurers to report specified fire risk information to the Department of Insurance.

Assembly Bill 2594 – Extends the existing statute of limitations for a homeowner to sue an insurer from 12 to 24 months if the loss is related to a state of emergency.

Senate Bill 894 – Provides assistance to survivors of major disasters or catastrophic events, including requiring insurers to renew a residential insurance policy for at least two renewal periods (24 months), requiring insurers to grant an additional 12 months of additional living expenses and allowing combined payments for losses to a primary dwelling and other structures so homeowners can apply those losses as they see fit, such as rebuilding the main home.

Senate Bill 30 – Requires the Insurance Commissioner to convene a working group to assess new and innovative investments in natural infrastructure and insurance products in light of California’s worsening fire vulnerability due to climate change.

Assembly Bill 1875 – Connects consumers who need residential property insurance with agents and brokers to help ensure they obtain plans and coverage that suit their specific needs.

Senate Bill 917 – Requires insurers to cover a loss resulting from a combination of disasters (landslide, mudslide, mudflow or debris flow) if an insured disaster is the proximate cause of the loss or damage and would otherwise be covered.

Tax Tips for Divorcing Homeowners

By: Dona DeZube

Published: January 7, 2015

Some divorcing homeowners end up with unanticipated tax bills when they sell their home. Find out how you can avoid being one of them.

If you’re getting divorced, your home may be the biggest asset you’ll have to divide with your soon-to-be ex. As you decide whether to sell it and split the proceeds or let one spouse live there until the last kid launches, remember there’s often a third party involved in your home sale transaction: Uncle Sam.

Keeping, selling, or continuing to share your home can each create different federal tax tabs for you and your ex-spouse. Here’s a look at the tax consequences for six of the most common situations divorcing couples face.

1.  One of you stays in the house until the kids grow up; then you sell it.

If you’re the one who moves out and agrees to hold off on selling the house until the kids are grown, you can end up with a whopping tax bill years later. That’s because the tax law provision that lets you avoid tax on home sale profits (or in tax speak, capital gains) typically only applies if you’ve lived in the house for two of the past five years.

Unless the kids are older and will be out of the house soon, the spouse who moves out typically won’t meet that two-year test.

Luckily, there’s a way to avoid this problem: If the divorcing spouses can agree that one of them will be granted use of the property under a divorce or separation instrument, the spouse who leaves can still consider the property as his or her main home under tax rules as long as the former spouse is living there. (You’ll need the supporting documentation — the decree — to prove this with the IRS, especially if you maintain this arrangement for more than 6 years.)

When the house is finally sold, each former spouse can avoid paying tax on up to $250,000 of profit from the sale. This is the same beneficial tax treatment they would have received had the divorce never happened.

2.  One of you buys out the other’s share of the house now.

When you want to keep the house but lose the spouse, a buyout can work for both of you. In a buyout, you buy your spouse’s share of the house.

You don’t have to pay exactly half the value of the house; it can be any amount that works for you both given other assets you’re dividing. To decide the current value of your home, ask a REALTOR® to do a broker’s price opinion for you.

Typically, the spouse who stays refinances the current mortgage, but that doesn’t have to happen.

Generally, you don’t have to pay taxes on any gain or loss you have from the buyout. That’s true even if the house is just one part of the bigger plan to divvy up your assets and debts — for example, if you get the house because you agreed to give your ex-spouse cash or to pay off debt you both owe.

Warning for spouses who are moving out: Be sure the mortgage really was paid off. Otherwise, you could still be liable for paying it. Call or write your lender and ask it to send a copy of the mortgage lien release to your new address. That’ll come in handy in the unlikely event that the mortgage continues to show up on your credit report and you need to prove it was paid off.

3.  You sell and both move out.

Some couples opt for a clean break from each other and from the home they shared. They sell the home and split the profit based on their divorce agreement.

If you sell a home you own jointly with your spouse, each of you can typically exclude up to $250,000 in home sale profits if you’re filing as a single and $500,000 if you’re filing a joint return. IRS Publication 523, Selling Your Home has the details.

The IRS fine print on the exclusion requires that:

  • The home was your main (principal) residence.
  • You lived there for two of the past five years.
  • You only use the exclusion once every two years.

Spouses who haven’t lived there for two of the past five years (perhaps because of job transfer or military deployment) might be eligible for a partial exclusion of the gain. You’ll find more information on those in Publication 523.

4.  You continue to share the house. 

Some couples who share custody of their children want to avoid having the kids shuffle between the parents’ two homes. The kids stay in the original house and the parents take turns living with kids some weeks and living in a second home or a rental during the other weeks.

The tax repercussions depend on whether you still consider the main home to be your principal residence. If, for example, you still get your mail there and keep it as your address for your driver’s license, it would likely still be counted as your home for tax purposes.

5.  You have a vacation or second home to divide.

You don’t get that lovely home sale profit (capital gains) exclusion when you sell a vacation home, so you’ll likely owe tax if you make money from selling a vacation home due to a divorce.

Capital gains tax varies based on your income. Most people pay 15% in capital gains taxes on their vacation home sale profits. Low-income sellers might pay no capital gains taxes, while those earning more than $406,750 would pay 23.8%, including the 3.8% surtax on net investment income.

If you don’t sell and instead get your spouse’s share of your vacation home, you won’t have to pay taxes on the transfer as long as it’s part of your original or modified divorce or separation agreement.

Maybe you can continue to share your vacation home with your ex-spouse and work out a written usage agreement as part of your divorce. You could each use the home 26 weeks of the year, for example.

6.  You own rental properties.

In general, if you give or receive a rental property as part of your divorce agreement, you won’t owe income taxes because of that transfer. But the spouse who sells the property in the future might owe tax on the recaptured depreciation that you both took in the past.

Depreciation is an annual allowance real estate investors get for the wear and tear, deterioration, or obsolescence of a property. When investors sell a property, they owe taxes on the depreciation they deducted in prior years.

Ask your accountant how the depreciation you both claimed might be recaptured and whether there are ways to avoid paying tax on recaptured depreciation.

For more information about investment property transfers in divorces see IRS Publication 504.

Three Caveats

There are three important exceptions to the six situations for divorcing homeowners outlined above:

1. They don’t apply if your spouse is a nonresident alien.

2. Properties held in trust follow a different set of tax rules outlined in Publication 504.

3. Property you got in a divorce agreement that happened before July 19, 1984, falls under a different set of IRS rules outlined in Publication 504.

One-Off Property Situations for Divorcing Couples

Although most people will find themselves in one of the six situations discussed above, other home-related tax complications can arise from divorce, especially if you continue to have a joint mortgage on a home that only one of you continues to own and/or live in. Here’s how the taxes play out for some of these one-off situations:

You used the first-time homebuyer tax credit.

Whichever spouse keeps the house is responsible for potentially repaying the first-time homebuyer tax credit if relevant. File Form 5405 to let the IRS know you don’t own the house anymore because of your divorce.

You pay the mortgage but don’t own the house.

Sorry, you can’t deduct the mortgage interest unless you own the home.

You don’t own the home and your ex pays the mortgage.

Sorry, you can’t deduct the mortgage interest unless you own the home and pay the interest.

You own the home but your ex pays the mortgage.

You report the mortgage payment on your tax return as alimony income and you then get to deduct the mortgage interest payment on Schedule A of Form 1040 if you itemize. You have to be legally obligated to pay the mortgage to be able to take the mortgage interest deduction.

If your lender sends your spouse (instead of you) Form 1098 (the form that proves to the IRS that interest payments were made), put a statement in with your tax return telling the IRS:

  • You own the house
  • Who the 1098 went to
  • Where the 1098 got mailed

You both own the home and you both pay the mortgage.

If both spouses own the house and contribute to the mortgage payment, but only one of you lives in the house, you each deduct the mortgage interest you pay. To take the mortgage interest deduction, you have to own the home and be legally obligated to pay the mortgage.

Each of you should include a statement with your respective returns, noting that you pay a share of the total interest shown on Form 1098.

Related: Tax Records to Keep — and For How Long

This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for tax advice and a legal professional for legal advice.

Read more: http://members.houselogic.com/articles/filing-taxes-after-divorce/preview/#ixzz3PUV4tbiZ
Follow us: @HouseLogic on Twitter | HouseLogic on Facebook

9 Easy Mistakes Homeowners Make on Their Taxes

By: G. M. Filisko

Published: January 5, 2015

Don’t rouse the IRS or pay more taxes than necessary — know the score on each home tax deduction and credit.

As you calculate your tax returns, be careful not to commit any of these nine home-related tax mistakes, which tax pros say are especially common and can cost you money or draw the IRS to your doorstep.

Sin #1: Deducting the wrong year for property taxes

You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind — that is, you’re not billed for 2013 property taxes until 2014. But that’s irrelevant to the feds.

Enter on your federal forms whatever amount you actually paid in that tax year, no matter what the date is on your tax bill. Dave Hampton, CPA, a tax department manager at the Cincinnati accounting firm of Burke & Schindler, has seen homeowners confuse payments for different years and claim the incorrect amount.

Sin #2: Confusing escrow amount for actual taxes paid

If your lender escrows funds to pay your property taxes, don’t just deduct the amount escrowed. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. Your lender will adjust the amount every year or so to realign the two.

For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200 or the amount of property taxes noted on the Form 1098 that your lender sends. If you don’t receive Form 1098, contact the agency that collects property tax to find out how much you paid.

Sin #3: Deducting points paid to refinance

Deduct points you paid your lender to secure your mortgage in full for the year you bought your home. However, when you refinance, you must deduct points over the life of your new loan.

For example, if you paid $2,000 in points to refinance into a 15-year mortgage, your tax deduction is $2,000 divided by 15 years, or $133 per year.

Related: How to Deduct Mortgage Points When You Buy a Home

Sin #4: Misjudging the home office tax deduction

The deduction is complicated, often doesn’t amount to much of a deduction, has to be recaptured if you turn a profit when you sell your home, and can pique the IRS’s interest in your return.

But there’s good news. There’s a new simplified home office deduction option if you don’t want to claim actual costs. If you’re eligible, you can deduct $5 per square foot up to 300 feet of office space, or up to $1,500 per year.

Sin #5: Failing to repay the first-time homebuyer tax credit

If you used the original homebuyer tax credit in 2008, you must repay 1/15th of the credit over 15 years.

If you used the tax credit in 2009 or 2010 and then within 36 months you sold your house or stopped using it as your primary residence, you also have to pay back the credit.

The IRS has a tool you can use to help figure out what you owe.

Sin #6: Failing to track home-related expenses

If the IRS comes a-knockin’, don’t be scrambling to compile your records. File or scan and store home office and home improvement expense receipts and other home-related documents as you go.

Sin #7: Forgetting to keep track of capital gains

If you sold your main home last year, don’t forget to pay capital gains taxes on any profit. You can typically exclude $250,000 of any profits from taxes (or $500,000 if you’re married filing jointly).

So if your cost basis for your home is $100,000 (what you paid for it plus any improvements) and you sold it for $400,000, your capital gains are $300,000. If you’re single, you owe taxes on $50,000 of gains.

However, there are minimum time limits for holding property to take advantage of the exclusions, and other details. Consult IRS Publication 523. And high-income earners could get hit with an additional tax.

Sin #8: Filing incorrectly for energy tax credits

If you made any eligible improvements in 2014, such as installing energy-efficient windows and doors, you may be able to take a 10% tax credit (up to $500; with some systems your cap is even lower than $500). But keep in mind, it’s a lifetime credit. If you claimed the credit in any recent years, you’re done.

Installing a solar electric, solar water heater, geothermal, or small wind energy system can also make you eligible to take the Residential Energy Efficient Property Credit.

To claim the deduction, you have to use the complicated Form 5695, which can mean cross-checking with half a dozen other IRS forms. Read the instructions carefully.

Sin #9: Claiming too much for the mortgage interest tax deduction

Taxpayers are allowed to deduct mortgage interest on home acquisition debt up to $1 million, plus they can also deduct up to $100,000 in home equity debt.

This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.

Read more: http://members.houselogic.com/articles/common-tax-mistakes/preview/#ixzz3PUUfekY6
Follow us: @HouseLogic on Twitter | HouseLogic on Facebook

Are Mortgage Points Tax Deductible?

Are Mortgage Points Tax Deductible?

By: Dona DeZube

Published: November 17, 2014

When you took out a mortgage to buy your home, did you pay points? You may be able to deduct that prepaid interest on your federal tax return — but only if you meet a long list of rules.

The points you paid when you signed a mortgage to buy your home may help cut your federal tax bill. With points, sometimes called loan origination points or discount points, you make an upfront payment to get a particular rate from the lender.

Since mortgage interest is deductible, your points may be, too.

If you itemize your deductions on Schedule A of IRS Form 1040, you may be able to deduct all your points in the year you pay them.

Some high-income taxpayers have their total itemized deductions limited, including points. You can read more about that in the instructions for Schedule A.

Lucky for you, the IRS doesn’t care whether you or the homesellers paid the points. Either way, those points are your deduction, not the sellers’.

Tip: Tax law treats home purchase mortgage points differently from refinance mortgage points. Refinance loan points get deducted over the life of your loan. So if you paid $1,000 in points for a 10-year refinance, you’re entitled to deduct $100 per year on your Schedule A.

The Fine Print for Deducting Points

The IRS rules for deducting purchase mortgage points are straightforward, but lengthy. You must meet each of these seven tests to deduct the points in the year you pay them.

1.  Your mortgage must be used to buy or build your primary residence, and the loan must be secured by that residence. Your primary home is the one you live in most of the time. As long as it has cooking equipment, a toilet, and you can sleep in it, your main residence can be a house, a trailer, or a boat.

Points paid on a second home have to be deducted over the life of your loan.

2.  Paying points must be a customary business practice in your area. And the amount can’t exceed the percentage normally charged. If most people in your area pay one or two points, you can’t pay 10 points and then deduct them.

3.  Your points have to be legitimate. You can’t have your lender label other things on your settlement statement, like appraisal fees, inspection fees, title fees, attorney fees, service fees, or property taxes as “points” and deduct them.

4.  You have to use the cash method of accounting. That’s when you report your income to the IRS as it comes in and report your expenses when you pay them. Almost everybody uses this method for tax accounting.

5.  You must pay the points directly. That is, you can’t have borrowed the funds from your lender to pay them. Any points paid by the seller are treated as being paid directly by you.

In addition, monies you pay, such as a downpayment or earnest money deposit, are considered monies out of your pocket that cover the points so long as they’re equal to or more than points.  Say you put $10,000 down and pay $1,000 in points. The downpayment exceeds the points, so your points are covered and therefore you can deduct them if you itemize. If you were to put nothing down but you paid one point, that $1,000 wouldn’t be deductible.

6.  Your points have to be calculated as a percentage of your mortgage. One point is 1% of your mortgage amount, so one point on a $100,000 mortgage is $1,000.

7.  The points have to show up on your settlement disclosure statement as “points.” They might be listed as loan origination points or discount points.

Tip: You can also fully deduct points you pay (for the year paid) on a loan to improve your main home if you meet tests one through five above.

Where to Deduct Points

Figured out that your points are deductible? Here’s how you deduct them:

Your lender will send you a Form 1098. Look in Box 2 to find the points paid for your loan.

If you don’t get a Form 1098, look on the settlement disclosure you received at closing. The points will show up on that form in the sections detailing your costs or the sellers’ costs, depending on who paid the points.

Report your points on Schedule A of IRS Form 1040.

There are two things related to points that you can’t deduct:

1.  Interest buy-downs your builder paid

Some builders put money in an escrow account (as a buyer incentive) that the lender taps each month to supplement your mortgage payment. Those aren’t considered points even though the money is used for an interest payment and it’s prepaid. You can’t deduct the money the builder put into that escrow account.

2.  Interest payments from government programs

You can’t deduct points paid by a federal, state, or local program, such as the federal Hardest Hit Fund, to help you if you’re experiencing financial trouble.

Read more: http://members.houselogic.com/articles/mortgage-points-deduction/preview/#ixzz3PUNgXgtw

Tax Deductions for Vacation Homes

By: Donna Fuscaldo

Published: January 9, 2015

Tax deductions for vacation homes vary greatly depending on how much you use the home and whether you rent it out.

A vacation home offers a break from the daily grind, but it can also offer a break from taxes. The IRS allows most owners to lower taxable income by taking tax deductions for vacation homes. What’s deductible depends on a number of factors, especially how often you visit and whether you allow renters.

Don’t limit your notion of a vacation home to a beach cottage or a mountain cabin. Even RVs and boats can count, as long as there are sleeping, cooking, and bathroom facilities. Tax deductions for vacation homes are complex, so consult a tax adviser.

Is Your Vacation Home a Vacation Home?

If you bought your vacation home exclusively for personal enjoyment, you can generally deduct your mortgage interest and real estate taxes, as you would on a primary residence. Use Schedule A to take the deductions.

The tax law even allows you to rent out your vacation home for up to 14 days a year without paying taxes on the rental income. You might be able to deduct any uninsured casualty losses too, within limits, though you can’t write off rental-related expenses. (More on those below.) If the home is rented for more than 14 days, you must claim the income.

Now, if you own what you consider a vacation home but never visit it, or only rent it out, other tax rules apply. Without personal use, the law considers the home an investment or rental property. Time spent checking in on the house or making repairs doesn’t count as personal use.

Tax Deductions for Rental Owners

As an exclusive rental property, you can deduct numerous expenses including property taxes, insurance, mortgage interest, utilities, housekeeping, and repairs. Even towels and sheets are deductible. Use Schedule E. You can also write off depreciation, the value lost due to the wear and tear a home experiences over time.

Treat the rental property like a business, says Mark Steber, chief tax officer at Jackson Hewitt Tax Services. Keep detailed records and maintain a separate checking account. Figure you’ll spend a couple of hours a week, on average, over the course of the year managing the property.

To maximize deductions, you need to be actively involved in the rental property. That means performing such duties as approving new tenants and coming up with rental terms. You also need to own at least 10% of the property. See IRS Publication 527 for details.

If your adjusted gross income is below $100,000, you can deduct as much as $25,000 for rental losses — that is, the excess of your rental expenses over your rental receipts. The deduction gradually phases out between an adjusted gross income of $100,000 and $150,000. You can carry forward excess losses to future years or offset losses to offset gains when you sell.

Mixed Use of a Vacation Home

The tax picture gets more complicated when in the same year you make personal use of your vacation home and rent it out for more than 14 days. Remember, rental income is tax-free only if you rent for 14 days or fewer.

The key to maximizing deductions is keeping annual personal use of your vacation home to fewer than 15 days or 10% of the total rental days, whichever is greater. In that case the vacation home can be treated as a rental, meaning you get the same generous deductions. To avoid going over the 10% limit, essentially you shouldn’t use your vacation home more than one day for every 10 days you rent it.

Make personal use of your vacation home for more than 14 days (or more than 10% of the total rental days, if this is greater than 14 days), however, and your deductions may be limited. For example, suppose you rented your vacation home for 180 days last year. You could use the home for up to 18 days of personal use before your deductions would be limited.

If you exceed the maximum, some deductions are limited; those related to the rental of the property are again limited by the ratio of actual rental days to the total days of use.

Let’s say you have a vacation home you personally use for 25 days and rent for 75 days. That’s 100 total days of use, and it exceeds the greater of 14 days or 10% of the rental days.  Therefore, your deductions are going to be limited in total and will also have to be allocated to personal and rental use by the ratio of time you rented the house compared with the total use. So you can only write off 75% of the expenses as rental expenses — 75 rental days divided by 100 total days of use works out to 75%. Some of the personal expenses, such as mortgage interest and real estate taxes, may be deductible on Schedule A.

Congress Closes Tax Loophole

A popular strategy used by owners of vacation homes to avoid paying capital gains on a sale was to convert a vacation home into a primary residence. This was accomplished by living in the home for two years out of the previous five before selling. Doing so qualified the sale for an exclusion from taxes for a profit of up to $250,000 for single filers and $500,000 for joint filers.

While the exclusion remains available, Congress closed a loophole for vacation homes. For 2009 and later years, you pay regular cap gains taxes on the portion of the gain that’s equivalent to the time you used the home as a vacation home after 2008.

Let’s say you bought a vacation home on Jan. 1, 2003, and it becomes your primary residence on Jan. 1, 2011. Two years later, you qualify for the cap gains exclusion and decide to sell on Jan. 1, 2013. You’re liable for capital gains taxes on 20% of the gain. Why?

Because for 20% of the 10 years you owned the property, it wasn’t eligible for the exclusion: In 2009 and 2010, you used it as a vacation home. But you can take the exclusion for the other eight years — 2003 through 2008, when the old rules applied, and Jan. 1, 2011, to Jan. 1, 2013, when the place was used as a primary residence.

This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.

Read more: http://members.houselogic.com/articles/tax-deductions-vacation-homes/preview/#ixzz3PUVopfDP
Follow us: @HouseLogic on Twitter | HouseLogic on Facebook

7 Homeowner Tax Advantages

By: G. M. Filisko

Published: January 2, 2015

When you’re evaluating how much home you can afford, make sure you factor in the tax advantages of homeownership.

Owning a home can be a real help at tax time because it generates deductions that may reduce the income tax you owe.

Here are seven tax benefits for homeowners.

1.  The mortgage interest deduction

Every year, you can deduct the amount of mortgage interest and late charges you pay on your mortgage and home equity loans, though there are limitations. Find out more in IRS Publication 936.

If you were required to purchase private mortgage insurance (PMI) because you made a downpayment of less than 20% on your home, you can also deduct those premiums for your 2014 taxes.

2.  Deductions for home loan fees

Typically, you can deduct the prepaid interest you paid in the year you took out your mortgage loan. That includes points, loan origination fees, and loan discount fees listed on your settlement statement, even if the seller paid those fees for you.

If you refinance your mortgage and use that money for home improvements, any points you pay are also deductible in the same year.

When you refinance your mortgage to get a better rate or shorten the term of your loan, you can deduct prepaid interest fees, but you typically have to spread the deduction out over the life of your loan.

You must meet certain requirements to take the prepaid interest deductions when you purchase or refinance your home. Check with your accountant to be sure you’re following the rules.

3.  Property tax deductions

In the year you purchase your home, you’re entitled to deduct the real estate taxes you paid at the closing table. You can continue to deduct the property taxes you pay each year.

4.  Home office expenses

If you have a home office you use only for business, you may be able to claim a standard deduction of up to $1,500 per year based on $5 a square foot for up to 300 square feet. Or you can do a more complicated calculation outlined in IRS Form 8829.

The government scrutinizes home office deductions closely. Be sure you’re entitled to the deductions before claiming them.

5.  The costs of selling your home

In the year you sell your home, you can deduct the costs of selling it, including real estate commissions, title insurance, legal fees, advertising, administrative costs, and inspection fees.

You can also deduct decorating or repair costs you incur in the 90 days before you sell your home. See IRS Publication 523 for more information about the home sale deduction.

6.  The gain on your home

If you lived in your home for at least two of the previous five years before you sell it, the government lets you to take up to $250,000 of profit on the sale of your home tax free. That amount is doubled for married couples. This deduction isn’t available on rental or second homes, the IRS explains in Publication 523.

The government also allows you to subtract from your home sale profit any amounts you spend on capital improvements, such as window replacement, siding, or a kitchen remodel. Money invested for routine maintenance and repairs doesn’t count.

7.  Solar panel system tax credit

Adding solar panels to your home cuts your electricity bill, but it can also cut your federal taxes if you can take the Residential Energy Tax Credit. Breaks are also available for wind turbines and geothermal heat pump systems.

This article includes general information about tax laws and consequences, but is not intended to be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws vary by jurisdiction.

G.M. Filisko is an attorney and award-winning writer whose enjoyed the tax advantages of homeownership for more than 20 years. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Read more: http://members.houselogic.com/articles/7-homeowner-tax-advantages/preview/#ixzz3PUWDshrp
Follow us: @HouseLogic on Twitter | HouseLogic on Facebook

6 Home Deduction Traps and How to Avoid Them

By: Barbara Eisner Bayer

Published: January 2, 2015

Get an “A” on your Schedule A form: Dodge these tax deduction pitfalls to save time, money, and an IRS investigation.

Schedule A is the part of Form 1040 where you list your deductions, and the more deductions you claim, the more chances you have to misinterpret IRS rules.

To save you the heartache of having a deduction disallowed, we asked four tax experts to weigh in on the six most common home-related Schedule A mistakes taxpaying do-it-yourselfers make.

Trap #1: Line 6 – Real estate taxes
Trap #2: Line 6 – Tax calculations for recent buyers and sellers
Trap #3: Line 10 – Properly deducting points
Trap #4: Line 10 – HELOC limits
Trap #5: Line 13 – Private mortgage insurance
Trap #6: Line 20 – Casualty and theft losses

Trap #1: Line 6 – Real estate taxes

Your monthly mortgage payment often includes money that goes into your escrow account, from which the lender pays your local real estate taxes.

Your lender keeps up to a two-month payment cushion, so the money you sent the bank last year may be more than what the bank pays for your property taxes, says Julian Block, a tax attorney and author of “Julian Block’s Home Seller’s Guide to Tax Savings.”

The lender sends you a 1099 showing how much it paid for your property taxes. Use that number to avoid putting the wrong number on Schedule A.


  • Your monthly payment to the lender: $2,000 for mortgage + $500 escrow for taxes
  • Your annual property tax bill: $5,500

Now do the math:

  • Your bank received $6,000 for real estate taxes, but only paid $5,500. It may keep the extra $500 to apply to the next tax bill or refund it to you at some point, but meanwhile, you’re making a mistake if you enter $6,000 on Schedule A.
  • Instead, take the number from Form 1098 — which your bank sends you each year — that shows the actual taxes paid.

Trap #2: Line 6 – Tax calculations for recent buyers and sellers


If you bought or sold a home in the middle of the year, figuring out what to put on line 6 of your Schedule A Form is tricky.

Don’t simply enter the number from your property tax bill on line 6 as you would if you owned the house the whole year. Instead, use the property tax amount listed on your HUD-1 closing statement, says Phil Marti, a retired IRS official.

Here’s why: You only get to deduct what you actually owed in property tax. If the sellers lived in the property part of the year, they’ll give you money to pay their share of the property tax bill, but you don’t get to deduct their share, only yours.

Trap #3: Line 10 – Properly deducting points

You can deduct points paid on a refinance, but not all at once, says David Sands, a CPA with Buchbinder Tunick & Co LLP. Rather, you may be able to deduct them over the life of your loan. So if you paid $1,000 in points for a 10-year refinance, you may be entitled to deduct only $100 per year on your Schedule A Form.

To deduct points on a home purchase, you have to follow different rules.

Trap #4: Line 10 – HELOC limits

If you took out a home equity line of credit (HELOC), and used it for something other than improving your home, you can generally deduct the interest on it only up to $100,000 of debt each year (married filing jointly), says Matthew Lender, a CPA with Elliot Horowitz & Company.

If your HELOC was used to improve your home, you may deduct interest on lines up to $1 million ($500,000 married filing separately).

For example, if you take out a $115,000 home equity loan to pay your kids’ tuition, you can deduct the interest on the first $100,000 but not on the $15,000 that exceeds the limit. Use the same $115,000 to add a new bedroom, however, and the full amount is allowable under the $1 million cap.

Trap #5: Line 13 – Private mortgage insurance

You can deduct PMI on your Schedule A Form for 2014.

Since you’re thinking about it, this is also a good time to see if you have to continue paying PMI: You might be able to cancel your PMI if your home value has risen and the amount your owe on your mortgage has gone down.

Trap #6: Line 20 – Casualty and theft losses



You can deduct part or all of losses caused by theft, vandalism, fire, or similar causes, as well as corrosive drywall, but the process isn’t always obvious or simple:

  • Only deduct losses that are greater than 10% of your adjusted gross income and exceed $100.
  • Fill out Form 4684, which involves complex calculations for the cost basis and fair market value. When you’re done, you’ll know the amount you can deduct on line 20 of your Schedule A.

Bottom line on line 20: If you’ve got extensive losses, it’s best to consult a tax pro. “I wouldn’t do it myself, and I’ve been dealing with taxes for 40 years,” says former IRS official Marti.

This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.

Read more: http://members.houselogic.com/articles/schedule-form-6-home-deduction-traps/preview/#ixzz3PUW1w5XF
Follow us: @HouseLogic on Twitter | HouseLogic on Facebook

Your Top Homeownership Tax Questions Answered

By: Natasha Padgitt

Published: January 5, 2015

Which tax benefits do homeowners miss? Will you get audited if you take the home office deduction? Find out the answers to these questions and more before Tax Day.

There are a lot of homeownership tax benefits — if you don’t forget to take them. To make sure you get your due, HouseLogic asked tax expert Abe Schneier, a former senior technical manager with the American Institute of CPAs, for tax-filing tips.

HouseLogic: What’s the most common home-related tax deduction or credit claimed by homeowners?

Abe Schneier: The mortgage interest deduction, [which the NATIONAL ASSOCIATION OF REALTORS® estimates amounts to about $3,000 in tax savings for the average itemizing homeowner] and [the deduction for] real property taxes.

HL: Which tax provision do homeowners often overlook?

AS: You can deduct mortgage insurance premiums [or PMI] if you were required to get PMI as a condition of receiving financing on your home. Some people will overlook that, although it’s typically disclosed on the 1099 that you receive from the bank, along with all the deductible information you need.

HL note: The PMI deduction expired in 2014, but Congress may renew it for 2015 by passing a bill that extends the deduction. That’s something they’ve done in past years.

[Another area of tax-filing confusion is] whether you’ve correctly treated any points you paid if you refinanced. In a new home purchase, the points can be deducted [in the tax year you paid them]. But typically in a refinancing, you have to amortize and deduct any points you paid over the life of the mortgage, and people tend to forget that after a couple of years.

HL: What’s the No. 1 mistake homeowners make when filing their taxes?

AS: Because you receive a statement from the bank with details [such as] how much mortgage interest you paid over the year, and how much the bank pays on your behalf in real estate taxes, the number of mistakes has dropped.

But if you’re in a state where you pay the real estate taxes on your own — the bank doesn’t handle it for you — [people] make mistakes because sometimes real estate tax bills include other items besides pure real estate taxes. It could be trash collection fees; it could be snow removal fees that the state or county is assessing on the real estate tax bill. Since the items are included in the same bill, homeowners sometimes deduct [those fees] regardless of whether the items are actually taxes.

HL: What’s the single most important piece of advice for people filing their taxes as a first-time homeowner?

AS: You have to take a look at your closing statement from when you bought the house. It’s commonly called the HUD-1 form and you receive it at the closing. Occasionally, there are fees such as prepaid taxes or interest at closing that can be deductible.

HL: What tax advice do you have for someone who’s owned their home for 10 or 20 years?

AS: If you’ve been a longtime homeowner and you’ve been through refinancings, you have to be careful about how much interest you’ve deducted, especially if you have a home equity loan or equity line. A lot of people who’ve refinanced have sizable equity lines. The maximum outstanding home equity debt on which interest is deductible is $100,000; the maximum loan amount on which interest is deductible is $1 million.

HL: What home improvement-related records should homeowners keep?

AS: Absolutely keep your receipts for couple of reasons:

1. You want to make sure — if there are any warranties attached to the work that was done — that you maintain those records and you have something to go back to the person who did the work in case something doesn’t function properly.

2. If you’ve added value to the home — you’ve added a deck, you’ve added a room, you’ve added something new to house — you’ll need to know what the gain is on that capital improvement when you sell the house.

HL note: Tax rules let you add capital improvement expenses to the cost basis of your home, and a higher cost basis lowers the total profit or capital gain you’re required to pay taxes on. Of course, most homeowners are exempted from taxes on the first $500,000 in profit for joint filers ($250,000 for single filers). So it doesn’t apply to too many people.

HL: How do I tell the difference between a capital improvement and a repair?

AS: Typically a repair is [done] to allow an item, like a home furnace or air conditioner, to continue. But if you were to replace the heating unit, that’s not a repair.

HL: Does taking any home-related tax benefits, such as the home office deduction, make a taxpayer more likely to be audited?

AS: Only if numbers look out of the ordinary — for instance, if one year you were writing off $20,000 in mortgage interest debt and the next year you’re writing off $100,000 in mortgage interest. Taking the home office deduction in and of itself doesn’t usually generate an audit. However, if you claim nominal income and significantly higher expenses in an effort to create artificial losses, the IRS will see that there’s something else going on there.

HL: Once filing season is over, when should homeowners start thinking about next year’s taxes?

AS: Well, hopefully, when you visit your CPA to give information about or pick up [this year’s] tax return, your CPA has spoken with you about your plans for [next year]:

  • If any major improvements are scheduled
  • If you’re planning on moving
  • How to organize any expenditures for fixing up the home before sale

If you’re planning to do any of those things, talk with your CPA so that you’re prepared with documentation and so that the [tax pro] can help minimize your tax situation.

Read more: http://members.houselogic.com/articles/tax-questions/preview/#ixzz3PUVREfrF
Follow us: @HouseLogic on Twitter | HouseLogic on Facebook

Don’t Miss These Home Tax Deductions

By: Dona DeZube

Published: December 22, 2014

From mortgage interest to property tax deductions, here are the tax tips you need to get a jump on your returns.

Owning a home can pay off at tax time.

Take advantage of these homeownership-related tax deductions and strategies to lower your tax bill:

Mortgage Interest Deduction

One of the neatest deductions itemizing homeowners can take advantage of is the mortgage interest deduction, which you claim on Schedule A. To get the mortgage interest deduction, your mortgage must be secured by your home — and your home can be a house, trailer, or boat, as long as you can sleep in it, cook in it, and it has a toilet.

Interest you pay on a mortgage of up to $1 million — or $500,000 if you’re married filing separately — is deductible when you use the loan to buy, build, or improve your home.

If you take on another mortgage (including a second mortgage, home equity loan, or home equity line of credit) to improve your home or to buy or build a second home, that counts towards the $1 million limit.

If you use loans secured by your home for other things — like sending your kid to college — you can still deduct the interest on loans up $100,000 ($50,000 for married filing separately) because your home secures the loan.

PMI and FHA Mortgage Insurance Premiums

You can deduct the cost of private mortgage insurance (PMI) as mortgage interest on Schedule A if you itemize your return. The change only applies to loans taken out in 2007 or later.

By the way, the 2014 tax season is the last for which you can claim this deduction unless Congress renews it for 2015, which may happen, but is uncertain.

What’s PMI? If you have a mortgage but didn’t put down a fairly good-sized downpayment (usually 20%), the lender requires the mortgage be insured. The premium on that insurance can be deducted, so long as your income is less than $100,000 (or $50,000 for married filing separately).

If your adjusted gross income is more than $100,000, your deduction is reduced by 10% for each $1,000 ($500 in the case of a married individual filing a separate return) that your adjusted gross income exceeds $100,000 ($50,000 in the case of a married individual filing a separate return). So, if you make $110,000 or more, you can’t claim the deduction (10% x 10 = 100%).

Besides private mortgage insurance, there’s government insurance from FHA, VA, and the Rural Housing Service. Some of those premiums are paid at closing, and deducting them is complicated. A tax adviser or tax software program can help you calculate this deduction. Also, the rules vary between the agencies.

Prepaid Interest Deduction

Prepaid interest (or points) you paid when you took out your mortgage is generally 100% deductible in the year you paid it along with other mortgage interest.

If you refinance your mortgage and use that money for home improvements, any points you pay are also deductible in the same year.

But if you refinance to get a better rate or shorten the length of your mortgage, or to use the money for something other than home improvements, such as college tuition, you’ll need to deduct the points over the life of your mortgage. Say you refi into a 10-year mortgage and pay $3,000 in points. You can deduct $300 per year for 10 years.

So what happens if you refi again down the road?

Example: Three years after your first refi, you refinance again. Using the $3,000 in points scenario above, you’ll have deducted $900 ($300 x 3 years) so far. That leaves $2,400, which you can deduct in full the year you complete your second refi. If you paid points for the new loan, the process starts again; you can deduct the points over the life of the loan.

Home mortgage interest and points are reported on Schedule A of IRS Form 1040.

Your lender will send you a Form 1098 that lists the points you paid. If not, you should be able to find the amount listed on the HUD-1 settlement sheet you got when you closed the purchase of your home or your refinance closing.

Property Tax Deduction

You can deduct on Schedule A the real estate property taxes you pay. If you have a mortgage with an escrow account, the amount of real estate property taxes you paid shows up on your annual escrow statement.

If you bought a house this year, check your HUD-1 settlement statement to see if you paid any property taxes when you closed the purchase of your house. Those taxes are deductible on Schedule A, too.

Energy-Efficiency Upgrades

If you made your home more energy efficient in 2014, you might qualify for the residential energy tax credit.

Tax credits are especially valuable because they let you offset what you owe the IRS dollar for dollar for up to 10% of the amount you spent on certain home energy-efficiency upgrades.

The credit carries a lifetime cap of $500 (less for some products), so if you’ve used it in years past, you’ll have to subtract prior tax credits from that $500 limit. Lucky for you, there’s no cap on how much you’ll save on utility bills thanks to your energy-efficiency upgrades.

Among the upgrades that might qualify for the credit:

  • Biomass stoves
  • Heating, ventilation, and air conditioning
  • Insulation
  • Roofs (metal and asphalt)
  • Water heaters (non-solar)
  • Windows, doors, and skylights

To claim the credit, file IRS Form 5695 with your return.

Vacation Home Tax Deductions

The rules on tax deductions for vacation homes are complicated. Do yourself a favor and keep good records about how and when you use your vacation home.

  • If you’re the only one using your vacation home (you don’t rent it out for more than 14 days a year), you deduct mortgage interest and real estate taxes on Schedule A.
  • Rent your vacation home out for more than 14 days and use it yourself fewer than 15 days (or 10% of total rental days, whichever is greater), and it’s treated like a rental property. Your expenses are deducted on Schedule E.
  • Rent your home for part of the year and use it yourself for more than the greater of 14 days or 10% of the days you rent it and you have to keep track of income, expenses, and allocate them based on how often you used and how often you rented the house.

Homebuyer Tax Credit

This isn’t a deduction, but it’s important to keep track of if you claimed it in 2008.

There were federal first-time homebuyer tax credits in 2008, 2009, and 2010.

If you claimed the homebuyer tax credit for a purchase made after April 8, 2008, and before Jan. 1, 2009, you must repay 1/15th of the credit over 15 years, with no interest.

The IRS has a tool you can use to help figure out what you owe each year until it’s paid off. Or if the home stops being your main home, you may need to add the remaining unpaid credit amount to your income tax on your next tax return.

Generally, you don’t have to pay back the credit if you bought your home in 2009, 2010, or early 2011. The exception: You have to repay the full credit amount if you sold your house or stopped using it as primary residence within 36 months of the purchase date. Then you must repay it with your tax return for the year the home stopped being your principal residence.

The repayment rules are less rigorous for uniformed service members, Foreign Service workers, and intelligence community workers who got sent on extended duty at least 50 miles from their principal residence.

Related: A Homeowner’s Guide to Taxes

This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.

Read more: http://members.houselogic.com/articles/home-tax-deductions/preview/#ixzz3PUVF3HHX
Follow us: @HouseLogic on Twitter | HouseLogic on Facebook

Matching Room Color and Lighting to Get the Effect You Desire

By: Lisa Kaplan Gordon

Published: February 10, 2014

Light changes color, so your lighting design — a top priority for any remodel — should help guide your color choices. Here’s how.

If you want to make your remodel project shine, finalize your lighting design before you select paint and carpet colors. The light you choose to illuminate tasks or set the mood will change the way you see color throughout the room. The Robin’s Egg Blue you picked could look like Paris at Sunset under some kinds of light.

It’s all determined by the way light and colors interact.

“People have to understand that the color of an object won’t look the same 24 hours a day,” says lighting designer Joseph Rey-Barreau. “I just had bamboo flooring installed throughout my house, and during the day it looks totally different than it looks at night.”

The way we “see” color primarily depends on two things:

1. The light that an object absorbs. Black absorbs all colors; white absorbs none; blue absorbs red.

2. How the light source works. Natural light (sunlight) changes throughout the day and is affected by a room’s location. Artificial light changes with the type of bulb you use.

How Sunlight Affects Colors

As the amount and angle of the sun changes, so will your room colors.

“Natural light should always be considered when choosing color for a space,” says Sarah Cole of the Farrow & Ball paint company.

North-facing rooms: Light in these rooms is cool and bluish. Bolder colors show up better than muted colors; lighter colors will look subdued. “Use strong colors and embrace what nature has given,” says Cole.

South-facing rooms: Lots of high-in-the-sky light brings out the best in cool and warm colors. Dark colors will look brighter; lighter colors will virtually glow.

East-facing rooms: East light is warm and yellowy before noon, then turns bluer later in the day. These are great rooms for reds, oranges and yellows.

West-facing rooms: Evening light in these rooms is beautiful and warm, while scant morning light can produce shadows and make colors look dull.

How Light Bulbs Affect Color

The type of bulb you use can alter the colors in a room, too.

Incandescents: The warm, yellow-amber light of these bulbs will make reds, oranges, and yellows more vivid, while muting blues and greens.

Fluorescents: This flat and cool light enriches blues and greens.

Halogens: These white lights resemble natural light and make all colors look more vivid. Using halogens would make the shift from daylight to artificial light less jarring.

Compact fluorescent lights (CFLs): CFLs can produce either a warm white, neutral, or bluish-white light.

Light-emitting diodes (LEDs): You can buy warmer or cooler LEDs, and even “smart” LED bulbs whose color you can control wirelessly. “You can point to the color of the sky in a picture at sunset and make the light bulb in the house be that same color,” says Rey-Barreau.

Related: The Latest In Lighting Trends to Enhance Your Home
Tips for Achieving the Color You Want
Paint squares of primed drywall with samples of the colors you’re considering, and then move them around the room during the day. Apply at least two coats.
Evaluate samples of carpet during different daylight conditions.
Most contractors won’t hang lights before you paint, but you can get a color approximation by placing a bulb you’ll be using in a floor or desk lamp. If you’re hyper-sensitive to color or want a very specific look, ask your electrician to hang the lights, then cover them carefully during painting.
Remember that natural and artificial light will work together during certain times of day, especially in summer when dusk lasts a long time. Turn on artificial lights even during daylight to see what your colors will look like.
Paint sheen also affects color. Glossy finishes will reflect light and change the way the color looks, whereas flat finishes are less reflective and allow colors to look truer under bright light.
Light-colored walls can reflect the colors of bold carpets: A bright blue rug, for instance, can cast a bluish tone on a white wall.

Read more: http://members.houselogic.com/articles/choosing-paint-colors-how-light-affects-color/preview/#ixzz34Rs4y24i