Research: Learn everything you can about tax deductions your home can provide. Without a thorough knowledge of this topic, you could miss out on the opportunity for a bigger return- or wind up owing money- when April 15th rolls around. Before filing your return, make sure you understand how to report mortgage interest, personal property tax payments, and points paid on your loan. All of these things can be used as deductions which means more money in your pocket when tax season arrives. Want to learn more? Check out the information provided to homeowners by the IRS.
Keep Track of Everything: When in doubt, keep a receipt or record of what you have sent on your home. Whether it is a personal property tax payment or home improvement, erring on the side of keeping everything will make it easier to maximize your tax return. Want to move away from paper records? Use an online platform such as Google Drive or Dropbox to scan in documents before you shred or recycle.
Always Go Green: If you plan to make home improvements before selling or after you purchase a new home, always choose the most energy efficient options. While it varies from state to state, many states are still offering tax credits for home improvements which meet energy efficiency requirements.
Selling? Know When to Include Your Gain: If you are selling or have recently sold a home, you may be able to exclude the profit gained from your tax return. If the home you have sold or are selling was your primary residence for at least two of the last five years, you do not have to report a gain of up to $250,000. If you own two homes, the home you spend most of your time is your primary place of residence.
Reporting Your Gain: If your circumstances require you to report your gain after selling your home, know how to properly report this information. You can report it on Form 1040, Schedule D, Capital Gains and Losses.
Work From Home? Designate a Separate Space: It is becoming increasingly common for people to telecommute or work from home. If you are purchasing a new home, consider a home which will allow you to designate an entire room as a home office. This is important, because if your home office also doubles as a dining room table or your bedroom, you cannot claim it as a home office on your tax return.
Keep Everything Up-to-Date: Once you have moved, make sure you have updated your address with the U.S. Post Office and the IRS so you can be sure any documents or returns get into your hands as soon as possible. Use Form 8822, Change of Address, to notify them of the switch.
by Mary Sauer