Spring may be slow in coming this year, but tax season always arrives right on schedule. Of course, home ownership has its own tax implications. Here are nine of the main ones to keep in mind, either for this year or looking ahead to next if you expect to buy or sell a home this year.
1 - Mortgage interest deduction
This is probably the #1 tax issue in most homeowner's minds, and is often cited as a key incentive for buying a home. But the actual financial impact can be surprisingly limited.
It's true that most homeowners can deduct 100 percent of their mortgage interest on their federal taxes. However, that doesn't do you any good unless your itemized deductions exceed what you could take with the standard deduction.
The standard deduction for 2013 is $12,200 for a married couple filing jointly, $6,100 for a single filer or for a married person filing separately, $8,950 for a head of household and $12,200 for a qualifying widow or widower.
To pay $12,200 in mortgage interest over a single year, for example, you'd need to have a $270,000 mortgage at 4.5 percent interest. If you're filing singly, the threshold is only half that much. This is why the mortgage interest deduction is often said to favor the well-to-do, because they tend to have more expensive homes and pay more in mortgage interest as a result.
Of course, the mortgage interest deduction is often what makes it possible to itemize deductions in the first place, so you can also take deductions for things like property taxes, a home office, health insurance premiums if you're self-employed and the like.
The deduction is capped at the interest paid on up to $1 million in mortgage debt, but that can be for both your primary home and a second home, if you own one. That total applies to any mortgages used to purchase, improve or repair either home. You can also deduct the interest on up to $100,000 in home equity loan debt, regardless of the purpose the money is used for.
2 - Property taxes
As indicated above, your state and local property taxes are deductable on your federal tax return. You should get a statement from your mortgage servicer - the company you send your mortgage payments to - detailing how much you paid in property taxes, which are escrowed as part of your monthly payments.
Just like with mortgage interest though, it isn't worth taking the deduction for property taxes unless your total itemized deductions exceed the standard deduction you are eligible for.
Some of your property taxes may not be deductable, however. If your local municipality bundles utility charges into your property tax bill, such as for trash pickup or sewer service, those are not deductable. Your tax statement from your municipality should detail any charges that cannot be deducted, though.
3 - Mortgage insurance
If you put less than 20 percent down on your home loan, you have to pay annual mortgage insurance premiums. These are typically billed monthly along with your regular statement. Fortunately, these payments are often tax-deductible.
To qualify, you must have closed your mortgage on or after Jan. 1, 2007. If you obtained your original mortgage prior to that date but refinanced on or after Jan. 1, 2007, you still qualify.
The deduction is allowed for payments for both private mortgage insurance (on conventional loans) and for mortgage insurance premiums charged on FHA mortgages. However, you can only deduct the full amount of your premiums if your adjusted gross income is less than $100,000. The deduction is phased out above that and disappears completely for AGIs of $110,000 and above.
It should be noted that this tax break expired at the end of 2013, so you won't be able to take this deduction on next year's tax returns unless Congress decides to extend it retroactively.
4 - Green Energy Credits
The tax credit for residential energy efficiency improvements has expired, but you can still take it on your 2013 tax return for work done through the end of last year. This credit allows you to deduct part of the cost of work done to improve the energy efficiency of your primary residence, such as adding insulation, new windows or doors, installing high-efficiency heating or air conditioning systems, and the like.
The credit ranges from 10-30 percent of the cost of the improvement, and is capped at a total of $500 over the life of the program, which began in 2006. Though the program has not been renewed for 2014, Congress has renewed the program retroactively in the past and could do so again for 2014.
Another energy credit is available for installing geo-thermal, solar, wind or fuel cell systems of various types. This credit is available for systems installed through the end of 2016 and allows a credit of 30 percent of the cost of the system with no cap except in the case of fuel cells, where the maximum credit is $500 per half kilowatt.
The names of the two programs are almost identical. The first is the Residential Energy Efficiency Tax Credit; the one that runs through 2016 is the Residential Renewable Energy Tax Credit.
5 - Moving costs
If you had to relocate for work-related reasons in 2013, your moving costs may be tax-deductable. You must have moved at least 50 miles beyond the distance of your old work commute and any costs paid by your new employer are not deductible.
You can deduct either the cost of hiring a mover or the cost of packing and transporting your possessions if you did it yourself. Temporary storage of your belongings for up to 30 days is also deductible, as is the cost of one night's lodging during the move, fees for connecting and disconnecting utilities, the cost of car travel to your new community and the cost of insurance during the move.
6 - Sale of a home
There are numerous tax breaks available for those who sold a home in the past year. The big one, of course, is that is you turned a profit on the sale of your primary residence, the first $250,000 is exempt from capital gains taxes if you're single, $500,000 for married couples. The flip side of this is that you can't claim a loss on the sale of your personal home, no matter how much it is.
Aside from that, you can deduct certain costs associated with selling the property, including fees paid your real estate agent, advertising costs and title insurance, among others. You can also deduct the cost of repairs and improvements that were made for the purpose of selling the home, provided they were done within 90 days of the transaction and only to reduce capital gains that exceed the limits described above.
7 - Home office
If you're self-employed or have a business on the side, you're probably aware that you can deduct certain costs related to having a home office. This typically means determining the percentage of your home's total square footage that is taken up by your home office, and deducting the proportional amount of whole-home expenses. So if your office is 5 percent of your home's area, you can deduct 5 percent of utility, maintenance costs and the like.
However, there's a new and simpler option available for 2013. With this method, you can take a deduction of $5.00 for each square foot of your home office, up to a maximum deduction of $1,500. So if your office is a 10x14-foot room, that works out to 140 square feet times $5.00, for a $900 deduction. Obviously, you should do both calculations to see which one provides the biggest tax break.
8 - Casualty losses
You can also take a tax deduction for property losses suffered in 2013, such as storm or flood damage to your home not covered by insurance, or items lost to theft. However, you can only deduct that portion of uninsured losses that exceed 10 percent of your income.
To qualify for this deduction, you must be able to document your actual losses. So if it cost you $10,000 to fix up your flood-damaged finished basement and replace damaged items, you need to be able to show not only that you spent that much, but also that you're not making a significant upgrade over what was there before. For items lost to theft or fire, you'll need to prove you actually had them, so photographs stored off-site are useful here.
9 - Debt cancellation
If you received a loan modification in which part of your mortgage debt was forgiven in 2013, the amount written off would normally be considered taxable income for you. The same applies to debt forgiven in a short sale or evaded through foreclosure, believe it or not.
However, such cancellation of debt income (CODI), as it is known, is temporarily excluded from taxation under the 2007 Mortgage Debt Forgiveness Relief Act. That act expired at the end of 2013 and has not been extended by Congress. So while it's still available for those filing their 2013 returns, it may not be around next year.
Need an extension?
Sometimes, getting all your deductions figured out can take extra time. If it looks like you won't be ready to file by the April 15 deadline, you can request an extension. However, that request must be filed by April 15 and you must pay any expected taxes by that time. If it turns out you owe more than you estimated, you could be subject to a penalty. If you wish, you can use an authorized online e-filing service, such as FileLater.com, to simplify matters.