Thursday, August 16 2012
With tax deduction limits coming for 2013, medically related home upgrades are a smart project this year.
What a difference year makes. For the 2012 tax year, you can take a tax deduction on medically necessary home improvements — like installing a wheelchair ramp and other projects that make life easier for an ill or injured family member — if you:
Starting in 2013, if you’re under age 65, you can’t take the tax deduction on medical expenses until you spend 10% of your AGI. But if you’re 65 or older in 2013, you can stick with the 7.5% AGI tax deduction threshold through the end of 2016. The rules for tax deductions on medical home improvements are tricky: 1. Start with what it costs to modify your home. How it works Say you’re 45 years old and spend $20,000 to put a bathroom on the first floor of your home because your husband can’t climb stairs anymore. Your AGI is $100,000. A REALTOR® says the bathroom adds $10,000 to the value of your house. 1. Start with the cost of the improvements: $20,000 So if you itemize, you can take a $2,500 deduction for the 2012 tax year. Wait until 2013 and you get no deduction because your threshold rises to 10%. If you’re over age 65, though, you can claim a $2,500 deduction. Tip: Doing all your improvements in a single year will help you meet the AGI threshold. Some of the improvements that you can claim a tax deduction for, according to IRS Publication 502, “Medical and Dental Expenses”:
Will the tax change encourage you to make necessary changes this year? Read more: http://www.houselogic.com/blog/tax-deductions/medical-tax-deduction-changes-2013/#ixzz23dg4PbL4 Thursday, April 26 2012
Tax deductions for home –modifications, capital expenses incurred if home improvements are necessary for medical reasons. The following comes from I.R.S, Pub. 502, medical and dental expenses.
"You can include in medical expenses amounts you pay for special equipment. Installed in a home, or for improvements, if their main purpose is medical care for you, your spouse, or your dependent. The cost of permanent improvements that increase the value of your property may be partly included as a medical expense. The cost of the improvement is reduced by the increase in the value of your property. The difference is a medical expense. If the value of your property is not increased by the improvement, the entire cost is included as a medical expense." Certain improvements made to accommodate a home for a disability condition, do not usually increase the value of the home and the cost can be included in full as a medical expense. As the baby boomers age these improvements will definitely improve the resale value of your house. That being said, perhaps the time to make these improvements is sooner than later. These improvements include, but are not limited to the following items. Adding an elevator or stair lift system. Elevators generally add value to the house. Other improvements include:
Amounts you pay for operation and upkeep of a capital asset qualify as medical expenses, as long as the main reason for them is medical care. This rule applies even if none or only part of the original cost of the capital asset qualified as a medical care expense. Improvements to property rented by a person with a disability are also an eligible medical expense. IRS Publication 502 indicates that “amounts paid by a renter to buy and install special plumbing fixtures in a rented house for a person with a disability, mainly for medical reasons, are medical expenses.” As a footnote remember it is always much less expensive to include accessible/ universal design features in the original design of the home. Our universal designed “smart” home plans incorporate all of the above and more in the initial design. There are also business deductions for complying with the ADA, Section 44 of the IRS Code allows a tax credit for small businesses and Section 190 of the IRS Code allows a tax deduction for all businesses. Thursday, April 05 2012
Tax benefits for home owners disappeared at the end of 2011 and no one knows whether Congress will bring them back. How annoying!
Congress was so busy bickering at the end of 2011 that it allowed two important tax breaks for home owners to expire. Beginning with the 2012 tax year: 1. You can no longer deduct the cost of private mortgage insurance premiums. 2. You aren’t getting a tax credit for some of your home energy improvements. You can take advantage of these provisions when you file your 2011 tax return — but beyond that, who knows. Now that Congress is back in session, it’s likely going to pick up where it left off — arguing about what programs to cut and what taxes to raise. The programs, deductions, and tax credits supporting home ownership belong at the top their to-do list. Up until the end of last year, you could deduct your private mortgage insurance premium (PMI) when calculating your income taxes. It was a benefit targeted to lower- and middle-income home owners. Once you made $100,000 or more, it started disappearing and anyone who had more than $110,000 of adjusted gross income couldn’t use it. The home owners who have to get mortgage insurance are buyers with less than a 20% down payment and refinancers with less than 20% equity. That’s more often first-time home buyers or younger home owners and less often move-up buyers who’ve built up equity in their homes. So in taking away the PMI deduction, Congress is raising taxes paid by first-time home buyers and younger home owners leaving them with less money to spend on housing. That’s especially wrong-headed when the housing market is struggling to recover. The tax credit for energy efficiency upgrades wasn’t enormous — it was capped at $500 or 10% of the cost for some projects; less for others. But it was a nice incentive to add insulation, new windows, or to upgrade your HVAC system with a more efficient unit — exactly the kind of actions that help decrease our dependence on fossil fuels, leading to a cleaner environment and less outflow of U.S. income to foreign countries. Not to mention, hopefully, smaller utility bills. In 2012, home ownership and energy independence advocates will fight to get those expired tax rules back on the books and to have them apply retroactively. It’s a familiar fight — they had to do the same thing at the end of 2010. But this year, the battle is more complicated because there’s a presidential election, discord between the major parties, and a general lack of consensus on any issues. We home owners certainly don’t all agree on who to vote for, but most of us consider the renewal of those policies is a no-brainer. And we really don’t appreciate it when Congress lets those rules expire at the end of one year and then leaves us to wonder the rest of the next year whether they’ll be renewed. Read more: http://www.houselogic.com/blog/tax-deductions/home-tax-deductions-2012/?nicmp=hlemail&nichn=solo&niseg=taxdeductions_2012#ixzz1r12GdoqN Monday, August 08 2011
Homeowners are familiar with the tax deductions that are available to them but there are also potential deductions available for those who own rental properties. Realtor® Joe Cline of Austin, Texas lists seven possible deductions that rental property owners will want to be aware of: Do you own any property that you rent out as investment? If yes, did you know that you can take advantage of tax deductions provided for owners of rental properties? That is right; aside from the income you earn by renting out and the possible profits from appreciation of your capital, owing a property can also reduce your income tax. In fact, rental real estate offers the most tax benefits compared to almost any other investment out there. Here are some of the possible tax deductions property rental owners can enjoy:
1. Tax deduction from interest
2. Tax deduction due to property depreciation
3. Deduction from repairs
4. Deduction from insurance
5. Deduction from professional and legal services
6. Tax deduction from hiring employees and/or independent contractors
7. Deduction from travel expenses
As a rental property owner, there are tax deductions you can take advantage of to lower your yearly taxes. The abundance of these deductible expenses makes rental real estate one of the most attractive investments there is. Know which types you qualify for, and see how much potential savings you have been missing out on. Read more: Seven Possible Tax Deductions For Property Rental Owners | REALTOR.com® Blogs Thursday, July 01 2010
After a close brush with a deadline that could have impacted tens of thousands of home buyers, the U.S. Congress last night passed an extension of the Home buyer Tax Credit closing deadline.
The extension is included in the Home Buyer Assistance and Improvement Act (H.R. 5623) and will prevent as many as 180,000 home buyers from losing their eligibility for the tax credit through no fault of their own. These households had home purchase contracts pending as of April 30 and had until June 30 to close on their purchases to claim the federal tax credit. Under the legislation that passed last night, these households now have until September 30 to close. The NATIONAL ASSOCIATION OF REALTORS® supported extension of that closing deadline because buyers are experiencing delays in getting their financing closed. The delays are the result of the large number of transactions that are short sales, which can take a long time to close, and the rush of transactions lenders are processing from buyers submitting contracts before the April 30 contract deadline. The legislation, which now goes to President Obama for signature, is designed to create a seamless extension of the closing deadline; there will be no gap between June 30 and the date the President signs the bill into law. NAR worked closely with congressional leaders on both sides of the aisle in supporting lawmakers' passage of the legislation, which the association says will help provide additional stability to real estate markets across the nation. Separately, the U.S. Senate also last night passed the National Flood Insurance Program Extension Act of 2010 (H.R. 5569), which extends the National Flood Insurance Program until September 30. This will allow home purchases in the 100-year floodplain to move forward. The House passed the bill last week. When signed into law by the President, the bill, which will apply retroactively, will cover the lapse period from June 1 to the date of enactment of the extension. Without flood insurance, households buying homes in the 100-year floodplain cannot obtain mortgage financing. More information on both pieces of legislation is at REALTOR.org. Source: NAR http://www.realtor.org/RMODaily.nsf/pages/News2010070101?OpenDocument Thursday, June 03 2010
Working from home can offer many advantages including tax deductions, just take care what you try to write off for your home office on your return. If you work from home, even on a part-time basis, you can probably save a few dollars come tax time. That’s because if you itemize your deductions on your federal tax return, you can write off as a business expense part of the cost of owning and operating your home. Everything from electric bills to property taxes may be fair game. Those tax deductions can add up, thus lowering your taxable income and reducing the amount you owe Uncle Sam. Before you start spending that refund, however, there are a few rules you need to understand and heed. It’s a good idea to consult a tax adviser to be sure that you’re filing the right schedules and maximizing your deductions.
Passing the IRS litmus testTo meet IRS guidelines, your home office must be your principal place of business, or the place you see clients in the normal course of business. Parts of your home you use to store products or equipment for your business also count. That doesn’t mean that all your work has to be done from home. If you’re an outside salesperson, you probably spend most of your work time elsewhere. But if you do you billing and return customer calls primarily from your home, your home office should qualify. Measuring your home officeThe amount you can deduct for your home office depends on the percentage of your home used for business. Your work space doesn’t need to be a separate room—a table in a corner qualifies. But it has to be an area that’s used solely for business. The tax break also covers separate structures on your property, like a detached garage you’ve converted to an office. Unlike an office inside your home, a separate structure doesn’t have to be your main place of business to qualify for a deduction. That’s because the IRS believes your family is less likely to use a separate structure as a part-time play area or den, says Mark Luscombe, principal analyst for tax and consulting at CCH. What can you deduct?Once you’ve figured out what percentage of your home you use for business, you can apply that percentage to different home expenses. These include:
Just take each expense and multiply it by your home office percentage (the 5% mentioned above). That’s the amount you can deduct as a business expense. So if you spend $150 a month on electricity, you can deduct $7.50 as a business expense. That adds up to a $90 deduction per tax year. If your annual business expenses total $10,000, your deduction is $500. In 2009, lowering your taxable income by $500 to $99,500 would’ve cut your tax bill by $113. Don’t forget depreciationDepreciation is based on the idea that everything—even something like a home—wears out eventually. To figure home office depreciation, start by calculating the tax basis of your home: generally the purchase price plus the cost of improvements, minus the value of the land it sits on. Next, multiply the tax basis by the percentage of your home used for work. This gives you the tax basis for you home office. Finally, multiply that by a depreciation percentage that’s set periodically by the IRS. There are caveats. For a crash course, read IRS Publication 946 or talk to a tax professional. This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction. Donna Fuscaldo has written about personal finance for more than decade for Dow Jones Newswires, the Wall Street Journal, and Fox Business News. She’s currently a freelance writer with her own home office. Source: http://www.houselogic.com/articles/tax-deductions-when-you-work-home/ Thursday, May 27 2010
While being a landlord certainly has its cons, tops among its pros are the tax deductions for rental homes enjoyed by owners. From finding tenants to fixing faucets, renting out a home can be a lot of work. Yet perhaps the biggest reward for being a landlord isn’t the rent checks, but rather the considerable tax deductions for rental homes.
Writing off rental home expensesMany rental home expenses are tax deductible. Save receipts and any other documentation, and take the deductions on Schedule E. Figure you’ll spend four hours a week, on average, maintaining a rental property, including recordkeeping.
Less obvious deductions include expenses to obtain a mortgage, and fees charged by an accountant to prepare your Schedule E. And don’t forget that a rental home can even be a houseboat or trailer, as long as there are sleeping, cooking, and bathroom facilities. Limits on travel expensesYou can deduct expenses related to traveling locally to a rental home for such activities as showing it, collecting rent, or doing maintenance. If you use your own car, you can claim the standard mileage rate of 55 cents per mile (in 2009). Repairs vs. improvementsAnother area that requires rental home owners to tread carefully is repairs vs. improvements. The tax code lets you write off repairs—any fixes that keep your property in working condition—immediately as you would other expenses. The costs of improvements that add value to a rental property or extend its life must instead be depreciated over several years. (More on depreciation below.) Deciphering depreciationDepreciation refers to the value of property that’s lost over time due to wear and tear. In the case of improvements to a rental home, you can deduct a portion of that lost value every year over a set number of years. Carpeting and appliances in a rental home, for example, are usually depreciated over five years. Profits and losses on rental homesThe rent you collect from your tenant every month counts as income. You offset that income, and lower your tax bill, by deducting your rental home expenses including depreciation. If, for example, you received $9,600 rent during the year and had expenses of $4,200, then your taxable rental income would be $5,400 ($9,600 in rent minus $4,200 in expenses). Tax rules for vacation homesIf you have a vacation home that’s mostly reserved for personal use but rented out for up to 14 days a year, you won’t have to pay taxes on the rental income. Some expenses are deductible, though the personal use of the home limits deductions. Source: http://www.houselogic.com/articles/tax-deductions-rental-homes/ Friday, February 19 2010
Keeping track of the cost of capital improvements to your home can really pay off on your tax return when it comes time to sell. It’s no secret that finishing your basement will increase your home’s value. What you may not know is the money you spend on this type of so-called capital improvement could also help lower your tax bill when you sell your house. Tax rules let you add capital improvement expenses to the cost basis of your home. Why is that a big deal? Because a higher cost basis lowers the total profit—capital gain, in IRS-speak—you’re required to pay taxes on.
The tax break doesn’t come into play for everyone. Most homeowners are exempted from paying taxes on the first $250,000 of profit for single filers ($500,000 for joint filers). If you move frequently, maybe it’s not worth the effort to track capital improvement expenses. But if you plan to live in your house a long time or make lots of upgrades, saving receipts is a smart move. What counts as a capital improvement?While you may consider all the work you do to your home an improvement, the IRS looks at things differently. A rule of thumb: A capital improvement increases your home’s value, while a non-eligible repair just returns something to its original condition. According to the IRS, capital improvements have to last for more than one year and add value to your home, prolong its life, or adapt it to new uses. Capital improvements can include everything from a new bathroom or deck to a new water heater or furnace. Page 9 of IRS Publication 523 has a list of eligible improvements. There are limitations. The improvements must still be evident when you sell. So if you put in wall-to-wall carpeting 10 years ago and then replaced it with hardwood floors five years ago, you can’t count the carpeting as a capital improvement. Repairs, like painting your house or fixing sagging gutters, don’t count. The IRS describes repairs as things that are done to maintain a home’s good condition without adding value or prolonging its life. How capital improvements affect your gainTo figure out how improvements affect your tax bill, you first have to know your cost basis. The cost basis is the amount of money you spent to buy or build your home including all the costs you paid at the closing: fees to lawyers, survey charges, transfer taxes, and home inspection, to name a few. You should be able to find all those costs on the settlement statement you received at your closing. Here’s where it gets interesting. Had you not factored in the money you spent on the kitchen remodel, you’d be facing a tax bill for that $25,000 gain that exceeded the automatic exemption. By keeping receipts and adjusting your basis, you’ve saved about $3,750 in taxes (based on the current 15% tax rate on capital gains). Well worth taking an hour a month to organize your home-improvement receipts, don’t you think? Watch out for these basis-bustersSome situations can lower your basis, thus increasing your risk of facing a tax bill when you sell. Consult a tax advisor. One common one: If you take depreciation on a home office, you have to subtract those deductions from your basis. Any depreciation taken if you rented your house works the same way. You also have to subtract subsidies from utility companies for making energy-related home improvements or energy-efficiency tax credits you’ve received. If you bought your home using the federal tax credit for first-time homebuyers, you’ll have to deduct that from your basis too, says Mark Steber, chief tax officer at Jackson Hewitt Tax Services. This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction. Donna Fuscaldo has written about personal finance for more than 10 years at the Wall Street Journal, Dow Jones Newswires, and Fox Business. She’s currently remodeling her home—and aiming to make a profit on it one day. Source: http://www.houselogic.com/articles/tax-breaks-capital-improvements-your-home/ Monday, January 18 2010
Homeowners who are eligible to deduct the PMI premiums paid on a mortgage can shave hundreds of dollars off their income tax bills. If you put down less than 20% on a house, expect to be required to purchase private mortgage insurance, which protects the lender in the event you default on the home loan. That’s a good deal for the lender, considering you’re the one paying the PMI premiums.
Getting the PMI tax deductionStarting with loans issued or refinanced in 2007, and continuing through 2010, you can deduct each year’s premiums paid on PMI for your principal residence and for a non-rental second home. The tax break was originally good for 2007 only, but the government extended it for three years. Unless it’s extended again, you won’t be able to take the deduction beyond 2010. How much can you save?According to the Mortgage Insurance Companies of America, an industry trade group, PMI premiums on a median priced home ($198,100 in 2008) run between $50 and $100 per month. Justine DeVito Tenney, a CPA and financial planner with Weiser LLP in Lake Success, N.Y., says a good rule of thumb is $50 a month for every $100,000 of financing. The amount of the downpayment, type of loan, and lender requirements can all affect the actual cost. Automatic cancellation of PMIWhile the tax deduction is nice, at least while it lasts, getting rid of PMI altogether is even nicer. The Mortgage Insurance Companies of America estimates that 90% of homeowners are done paying PMI premiums within five years of buying their homes. Requests for cancellationYou don’t have to wait for automatic cancellation. When your LTV hits 80%, you can petition your lender to end PMI. The process can take several weeks. Your lender isn’t required to oblige your request, but you’ll bolster your case if you have a good payment history. Piggyback loans dodge PMILooking for a PMI loophole? Try so-called piggyback loans, also known as 80/10/10 or 80/15/5 loans. Basically, the home lender finances 80% and immediately gives you a second loan for another 10% to 15%. You put down 5% to 10%. No PMI is required. Source: http://www.houselogic.com/articles/deduct-private-mortgage-insurance/ |