The day taxes are due (April 17th) is fast approaching, and tension is in the air. No one likes sending more money to Washington than they absolutely have to.
Even though most of us pay our taxes on time and in full, few of us don’t always consider how we could bring down our tax bill, and do it legally.
With that in mind, consider home improvements where you can actually get a tax deduction.
Home Improvement Write-Offs on Taxes
You can actually get a break on your taxes for alterations that make your home more energy efficient. This break, the Energy Efficiency Tax Credit, can be claimed by home owners who replace or upgrade portions of their house’s envelope. If you improve the windows, walls, roof, insulation, siding — basically any part of the home that touches the outside air, you can claim some portion on your taxes.
That’s not all: If you switch out your water heater or air conditioning system for a more efficient model, you might be able to take the credit. On the bright side, this deduction is still available for 2011. Unfortunately, though, you can only take it for one year, which means that if you applied for it in 2006, 2007, 2009 or 2010, you’re out of luck.
But even if you’ve already used the Energy Efficiency Tax Credit, you have a few other options for home improvement breaks on your taxes. For example, if you install fuel cells, solar cells, geothermal systems, or solar hot water heaters, you may be able to claim a deduction of up to 30% of the total installation price.
Home improvements can even be a money maker: If you produce more electricity than you use, you can often sell it back to the electrical grid. To sweeten the pot, the federal government doesn’t tax this income, so if your fuel cells, solar cells and geothermal system leave you with more electricity than you need, you might find yourself running a tax-free business!
Other Deductions Often Overlooked on Taxes
One other often forgotten write-off involves charity. Everyone knows you can claim a deduction for all those clothes you cart to Goodwill or the Salvation Army, but you can also claim the cost of the gas you spent hauling your stuff over there. Whenever you drive somewhere to perform volunteer work, you can claim the standard mileage rate for deductions, which varies from year to year. Check the current tax allowances for such deductions at the IRS Website.
Finding all the little breaks you have coming to you can be rewarding — both emotionally and financially. Good luck, and happy hunting!
There are 2 important Columbia SC real estate tax deductions you won’t be able to claim in 2012.
Congress was so busy bickering at the end of 2011 that it allowed two important tax breaks for home owners to expire.
Columbia SC Real Estate Deductions We Lose in 2012
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?
Private Mortgage Insurance
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 Columbia SC real estate 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 headed in the wrong direction when the housing market is struggling to recover.
Energy Tax Credit
The tax credit for energy efficiency upgrades on Columbia SC real estate 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.
Home ownership and energy independence advocates will fight to get those expired tax rules back on the books in 2012 and to have them apply retroactively. It’s a familiar fight — they had to do the same thing at the end of 2010. The battle this year is more complicated however, since we’re in an election year.
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.
Will you be claiming either of these Columbia SC real estate tax breaks on your 2011 returns?
Tax time is also scam time. There are some things you need to do when filing your taxes to protect your identity, and protect yourself from being scammed…
If you think you’ve become a victim of identity theft or fraud, act immediately to minimize the damage to your personal funds and financial accounts, as well as your reputation. Here are some things you can do to protect your identity:
1. Contact the Federal Trade Commission (FTC) to report the situation, whether Online,
2. By telephone toll-free at 1-877-ID THEFT (877-438-4338) or TDD at 202-326-2502, or
3. By mail to Consumer Response Center, FTC, 600 Pennsylvania Avenue, N.W., Washington, DC 20580.
You may also need to contact other agencies for other types of identity theft:
1. Your local office of the Postal Inspection Service if you suspect that an identity thief has submitted a change-of-address form with the Post Office to redirect your mail, or has used the mail to commit frauds involving your identity;
2. The Social Security Administration if you suspect that your Social Security number is being fraudulently used (call 800-269-0271 to report the fraud);
3. The Internal Revenue Service if you suspect the improper use of identification information in connection with tax violations (call 1-800-829-0433 to report the violations).
You also need to immediately contact the three principal credit reporting agencies.
Learn more at the Department of Justice website.
From incentives to deductions, taxes are complicated and can be confusing even for the seasoned property owner. Understanding the ins and outs of some common property tax concerns can help save you money and put your mind at ease. Here are 3 very common tax topics relating to real estate:
1. Natural Disaster Relief
If your home is affected by a natural disaster, your damage costs will be deductible from both state and federal income taxes. Disasters include fires, floods, earthquakes, hurricanes and more. Homeowners can deduct their losses by filing an amended return for the tax year before the event happened. This helps to minimize the wait for refund money that can be used to make repairs or pay for living expenses.
2. Historic Rehabilitation
If your home is a certified historic home, then you may be able to receive a break on your taxes. Many states offer tax incentives, reductions and abatement programs for owners of residential historic homes. These programs are described on the National Trust’s website, which also offers resources and tips for owners of historic homes. Visit the site at http://www.preservationnation.org.
3. Home Improvement Deductions
Many sellers ask if they can deduct the cost of improvements made to their homes from their taxes. The answer is not black and white.
Yes, you can deduct improvements, but only after the home has been sold. This is because improvements add to the basis of your home. Because your basis is subtracted from your selling price to figure out what your home sale gain is, these tax deductions can only be made after your home is sold and your basis is defined.
The IRS has specific qualifications for what counts as a taxable “improvement.” These are renovations that add to your home’s value and extend its “useful life. A taxable improvement examples might include an extra bathroom or updating plumbing, heating or electrical systems.
Even though tax day is still more than 2 months away, it’s never too early to start gettin yourself organized and ready to file, so you’re not one of the millions of procrastinators who wait til the last minute to file, or have to file an extension because you just weren’t ready.
This is one in a series of occassional articles about your taxes. For other tax related articles, click the “Taxes” Category to the right to see our full list of tax related content and tips.
1. Know your filing status — If you’re single, you can’t declare on your tax forms and returns that you are married nor can you claim someone as a dependent who isn’t. Unfortunately, tax forms including W-4 forms are sometimes incorrect. These forms should reflect your tax status as of December 31 of the filing year, and should be reviewed by you annually. Your marital status may have changed as might the number of dependents you have.
2. Keep your receipts — Receipts are important and should be kept on hand, offering proof of purchases made or donations given. If donating to a charity, you’ll want to get a receipt from that organization showing the items you donated. You may be able to value these gifts yourself too.
3. Use tax prep software — There are a number of tax preparation software programs available for you including TurboTax, TaxACT, Tax Cut and Tax Works. Such programs are inexpensive and can be ordered online and downloaded to your computer. Unless you’re using the services of a tax prep professional, these programs are an excellent alternative and can save you money.
4. Take a loss — Stocks or bonds that are performing poorly may not be worth holding onto. If you anticipate that you’ll lose money on the sale of such investments, take the loss and show it on your income taxes. That loss will reduce your tax burden. You can reduce it further by donating your investments to an eligible charity. Note: In order to take a loss for last year, the loss must have been recorded last year. You can’t sell poorly performing stocks or bonds now, or you’ll have to claim them NEXT year when you file for this tax year.
5. Fund your retirement plan — If you have a retirement plan, the funds you contribute are generally not taxable until you begin to make withdrawals. See your financial advisor to discuss options that are available to you. Prepare for the future and keep your money out of the hands of the federal government.
6. File on time or obtain an extension — Failing to file on time can lead to serious consequences. If for some reason you can’t finish your taxes by April 17 (you get two additional days this year), request an automatic 6-month extension to October 15. Whatever money you owe the IRS still has to be paid by April 17th, but the later filing deadline can buy you some much needed time as you finish gathering your documents.
We’ll have more tips on taxes as we get closer to filing time in April. Stay tuned!