These days few things start a fight on Capitol Hill faster than taxes. Despite
the fact that three important tax benefits used by millions of American
homeowners expired on Dec. 31, 2013, Congress hasn’t done anything to re-up
them.
So if you’re eligible, tax year 2013 is possibly the last time to claim the
private mortgage insurance (PMI) deduction, the energy tax credit, and debt
forgiveness benefit.
At least there’s one piece of good news for homeowners: If you have a home
office, there’s a new, simpler option for calculating the home office deduction
for which you may qualify on your 2013 taxes.
Meanwhile, here’s what you need to know about those expiring benefits as you
ready your taxes:
PMI Deduction
This tax rule lets you deduct the cost of private mortgage insurance, which
is what you pay your lender each month if you put down less than 20 percent on a
home. PMI protects the lender if you default on the home loan. Your deduction
could amount to a couple hundred dollars depending on your tax bracket and other
factors.
Find out if you qualify for and how
to take the PMI deduction.
Energy Efficiency Upgrades
This sweet little tax credit lets you offset what you owe the IRS
dollar-for-dollar for up to 10% of the amount you spent on certain home
energy efficiency upgrades, from insulation to water heaters. On the
downside, the credit is capped at $500 (less in some cases). But on the bright
side, the right improvement could lower your utility bills indefinitely.
Debt Forgiveness
When you go through a short
sale, foreclosure, or deed-in-lieu,
your lender typically lets you off the hook for some or all of what you owe on
your mortgage.
That forgiven mortgage debt is income, on which you’d typically have to pay
income tax.
Suppose you’re in financial distress and your lender agrees to let you
short-sell your home, say for $50,000 less than you owe on the mortgage, and
forgive you for the balance. Without the protection of the Mortgage Debt
Forgiveness Act, you’ll owe income tax on that $50,000.
It’s likely if you had the money to pay income tax on $50,000, you’d have
used it to pay your mortgage in the first place.
New Simplified Option for the Home Office Deduction
This may be the last year for the benefits above, but a new one kicks in for
the 2013 tax year. If you work from home, you may qualify to use a new,
simplified option for claiming the home office deduction when you file your 2013
taxes.
How much simpler is it? It lets you claim $5 per square foot for up to 300
square feet, instead of having to compute the actual expenses of your home
office using a 43-line form. To calculate the square footage of your office,
just multiply the length of two walls. For example, an 8-by-10-foot room is 80
square feet. And at $5 per square foot, that’s $400.
Although using the simplified option is easier, the basic requirements for
claiming the home office deduction haven’t changed. Your home office still must
be used for business purposes:
- Exclusively, and
- On a regular basis.
Might the Tax Benefits Be Renewed?
The expiring tax benefits were renewed retroactively in past years, and that
may happen in 2014, though it’s uncertain. Many in Congress would like to see
comprehensive tax reform rather than scattershot renewals of individual
provisions. This could delay a decision on the homeownership tax benefits.
So if you can, enjoy them now!
Realtor.com article
here.
Rahul and Smitha Ramchandani are a licensed real estate
Broker-Salesperson/Sales Representative Team with Keller Williams in New Jersey.
They are Buyer Specialists and Home Marketing Experts. You can reach Rahul and
Smitha and their team online at:
http://www.Morris-Homes.com,
http://www.SRRealEstateGroup.com
and http
://www.TheTownhouseExpert.com.
Their team specialize in North Central New Jersey including towns such as
Boonton,
Chatham,
Madison,
Chester,
Convent Station,
Denville,
East Hanover,
Florham Park,
Hanover,
Harding Twp.,
Mendham,
Montville,
Morristown,
Morris Plains,
Morris Twp.,
Mountain Lakes,
Parsippany,
Randolph,
Rockaway,
Whippany.