tax deductions

Even though the Scottsdale tax season has come and gone for most filers, “extension season” is here until October 17th. If you’re a homeowner and you filed an extension back in April, you’ll want to make sure you take advantage of some important Scottsdale tax deductions that can reduce your income tax liability when you file your returns.

Mortgage interest, real estate property taxes and mortgage insurance premiums (if applicable) are all deductible. Added together, these items can amount to a significant savings on your tax bill. Be prepared to include these deductions on your income tax returns. After all, tax advantages are among the major perks of home ownership.

Let’s examine four Scottsdale tax deductions you should definitely take advantage of.

Looking at Scottsdale tax deductions for late filers for 2015

Home mortgage interest

Your monthly mortgage payments include principal and interest. The interest is the amount you can deduct at the end of the year on you income tax returns. Federal regulations allow a homeowner to deduct the interest amount (up to $1 million if you’re filing jointly, or $500,000 if you’re single or married and filing separately) on a primary residence. Since the amount of interest you pay each year on your home mortgage is likely one of the largest deductions you can take on your tax bill, it’s important to know a few “ins and outs.” The mortgage interest deduction is available for interest paid on home purchases, refinances, home equity lines of credit (HELOCs) or second mortgages for any purpose. The amount of interest deductible as a result of home equity debt only applies to loan amounts up to $100,000 ($50,000 if you’re single or married and filing returns separately.) As you can imagine, the interest deduction can total several thousand dollars and can make a big impact on the amount you owe when you file your returns. Remember, it’s important to itemize your deductions accurately. Mortgage lenders are required to send you an annual statement showing how much interest you paid during the year.

Mortgage points

If you paid “points” on your mortgage loan when you obtained financing you may be able to deduct them, as well. Points are percentage points of the loan amount and occur in one of two ways:  discount points, which are paid by the borrower to enable him to prepay a portion of the mortgage loan interest to “buy down” the interest rate and the loan origination fee. As the name implies, a point is the equivalent to 1% of the mortgage loan amount. Often, homeowners forget about this all-important deduction. Overlooking points can be an expensive mistake. For example, if you borrowed $350,000 and paid an origination fee of 1%, the deduction of $3,500 could go directly to reducing your tax liability.

Real estate taxes

Another of the Scottsdale tax deductions you’ll want to make sure you include are the property taxes on your home. Real estate taxes are deductible on primary residences and can be deducted in the year in which they are paid. The property assessor’s office in the county where your home is located usually mails a statement that includes the amount of your real estate property taxes due. However, keep this in mind – if you purchased a home during the year the property taxes were likely pro-rated on the closing statement. The sellers were reimbursed for the portion of the taxes they “paid” up until the date of settlement. As the buyer, you can then deduct the entire amount of the real estate taxes – not just the amount you were responsible for in the pro-ration.

Mortgage insurance premium payments

When you purchased your home and obtained mortgage, if you made a down payment of less than 20% – or if your loan-to-value (LTV) ratio was less than 80% – you’re probably paying mortgage insurance to the lender each month as part of your payment. Mortgage insurance is a type of coverage that protects the lender against the borrower defaulting on the mortgage payments. Currently, mortgage insurance premiums are deductible for policies provided by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Rural Housing Service – in addition to policies provided by private mortgage insurance companies on most conventional home loans.

While the Internal Revenue Service allows you to deduct the insurance premium payments as part of your mortgage interest deduction, there are restrictions for higher-income borrowers. For example, the deduction is not available to homeowners whose adjusted annual gross income is $109,000 or more (or more than $54,500 for single persons or married couples who file separately.)

Non-deductible items

While the list of Scottsdale tax deductions can be quite a tax savings for homeowners, everything related to home ownership isn’t necessarily part of that list. Let’s look at a few items that aren't deductible. Be sure costs for these items don’t make their way onto your personal income tax returns unless you are running a business from your home, in which case, many of the rules change!

•  Homeowner’s insurance coverage or title insurance coverage. Remember, mortgage insurance is the only type of insurance that can be deducted for most individuals

•  Real estate depreciation

•  Utilities expenses (electricity, gas or water)

•  Loan closing costs. Points are the only exception.

•  Lost or forfeited deposits, down payments or earnest money

•  Most home improvements – unless they were financed as part of your home’s equity, or you own a home-based business and claim part of your home on your taxes.

•  Homeowners association (HOA) dues, fees or assessments

•  Transfer taxes, stamp taxes, or recording fees in the sale of a personal residence

In summary, home ownership has always provided tax advantages. It’s one of the attractive features of buying and owning a home. The deductions are part of a federal government incentive for Americans to own their own homes. Remember this, however, if your list of itemized deductions doesn't exceed the standard allowable deduction for which you’re eligible, then you should claim the standard deduction.

As always, if you have questions about your income taxes, what’s deductible and what’s not – it’s always best to consult a professional tax advisor. Deductions are important, and you certainly want to make sure you take advantage of every opportunity to save money on your taxes.

You can find more articles pertaining to Scottsdale tax deductions in the Taxes section of our site below Scottsdale Real Estate Categories in the column to your right.

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IRS logoThe 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!

Tax FormsThere are 2 important Scottsdale 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.

Scottsdale 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 Scottsdale 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 Scottsdale 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 Scottsdale real estate tax breaks on your 2011 returns?

As our country faces possibly the biggest budget crisis ever, the Obama Administration has created a deficit commission charged with discovering the best ways to bring down the national debt. It has come up with a plan to cut our $3 trillion dollars in debt over the next decade. One of the proposals this commission has suggested is to eliminate the time-honored mortgage interest tax deduction. While this idea has garnered some bi-partisan support, it has also created a major uproar among the mortgage industry associations, who claim now is not the time to mess with the tax break. So who is right?

Opponents of this proposal say it is essential to creating affordability in the housing market.

“It would immediately stop in its tracks any stabilization we are seeing in the housing market and would effectively increase the cost of homeownership for millions upon millions of people,” according to Michael Berman, chairman of the Mortgage Bankers Association.

That thought was echoed by Ron Phipps, president of the National Association of Realtors. “Any changes to the deduction, now or in the future, could critically erode home prices and the value of homes by as much as 15%,” adding, “it will effectively close the door on the American dream.”

In fact, the NAR recently surveyed homeowners and found that almost 75 percent of them consider the deduction “extremely” or “very important.” This suggests that perhaps some may not have bought homes without the tax break.

The current mortgage interest deduction allows homeowners to deduct all of the interest paid on their homes each year from their tax returns. Some interest from mortgages on investment property and home equity loans is currently eligible for the tax deduction. Proponents say that mortgage deduction really only profits the wealthy as lower-income buyers are not likely to itemize their taxes and cannot take advantage of the savings. They say it does not truly encourage homeownership, but simply encourages the wealthy to buy bigger homes than they otherwise would. Furthermore, the Treasury has estimated this mortgage deduction, one of the largest deductions in the U.S. tax code, will cost the government $131 billion in revenue in 2012.

The White House commission has proposed that instead of deducting mortgage interest, homeowners would be given a 12 percent non-refundable tax credit on mortgages up to $500,000. This would make the tax advantage available to all buyers, not just those rich enough to itemize their tax returns. There would also be no credit or deduction for second houses or home equity loans.

The issue comes down to answering the question ‘Is the mortgage deduction necessary to the full functioning of the housing market?’ In all honesty, no. People bought homes before the introduction of this tax break and they could certainly do so without it. The follow-up question is ‘can the economy and the housing market survive the immediate elimination of the mortgage deduction?’ That is much harder to answer.

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A little year-end financial planning could make your 2011 less stressful. Stacy Johnson explains…

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