FrontDoor's Top 10 Tax Tips
Save yourself money and a headache come tax season with these tax-savvy tips.
Tax season is upon us, and homeowners everywhere will reap the benefits of tax breaks and incentives. If you're currently renting, consider the tax advantages of homeownership. Now may be the time to buy. If you're an owner or seller, new incentives will help you survive this tough housing market. Know what expenses you can deduct and understand how new laws affect you. Remember to consult your tax advisor.
- Deduct the interest you pay on your home loan on your tax return. That means the mortgage interest deduction reduces your tax liability. And because your mortgage payments for the first few years are almost entirely comprised of interest, they are almost entirely tax deductible.
- Deduct property taxes and points you paid to lower your loan's interest rate. The IRS offsets the expense of your state/local property taxes by allowing you to deduct them from your itemized income tax return. And you get a tax benefit if you paid for discount points to lower your mortgage interest rate.
- Take advantage of new laws in a challenging market. New homebuyers can get an $8,000 tax credit, short sellers won't be penalized for forgiven mortgage debt, and homeowners can contest their property taxes in a declining market.
- Request a property tax reassessment if your home's market value has declined. You don't need to pay for a special service to have your local tax assessor adjust your property taxes. If your property value is significantly lower now than when you bought it, show proof of your home's current market value and recent comparable sales in your neighborhood and do it yourself to get your taxes lowered.
- Research past and proposed assessments that may apply to your home. Understanding property taxes and assessments will give you a truer picture of the cost of homeownership and help you predict and control your monthly expenses.
- Get a reliable estimate of your property tax bill. If you're buying a home, don't rely on the tax data in the property listing. Depending on the circumstances of the sale, your tax bill can differ from the previous owner's bill.
- Wrap your property taxes into your monthly mortgage payment. If paying one huge tax bill once or twice a year seems daunting, consider getting an escrow account. Also called an impound account, it protects the lender and offers convenience for the homeowner.
- Understand how capital gains tax is calculated. When you sell your home, you're taxed on any profit over $250,000 if you are single, $500,000 if married. But calculating your gains isn't as simple as "price you sold it for" minus "price you paid for it." The IRS takes into account the money you put into improving the home as well. So remember to save receipts for any repairs, maintenance and upgrades.
- Know how your tax situation changes with every real estate move you make. Whether you're buying a home, refinancing or renting out an investment property, understand how you'll be affected tax-wise.
- See if homeownership lowers your tax liability. Your tax situation varies depending on your stage in life. Examine your payroll withholdings and reduce them to account for the reduction in net tax liability. That means more money in your pocket every pay period.
NOTE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.