Four ways to turn home deductions into tax savings

Owners of homes must know the tax rules fully so that they can use the deductions to the fullest extent possible. A lot of tax savings can be made from the deductions available and it can be of immense help when the actual time arrives to pay the taxes.

Mortgage points

The interest rates in the year 2011 were at all time low, and this encouraged many people buy homes in the US. When mortgage was established, the lender charges the buyer with some mortgage points. Every point that the buyer paid is equivalent of one percentage of the mortgage amount. These points can be claimed for tax deductions in the year in which the tax is actually paid.

These reduced interest rates motivated house owners to refinance the mortgages that already existed. The points paid on a refinance scheme can also be claimed as tax deductions by the buyer. The point to be noted in the refinance scheme is that these points can be deducted all together when a purchase is made.

Real Estate Taxes

A few deductions can be claimed only once, whereas few other deductions are recurring. These are ongoing and can be claimed all through the life of a property. Real estate taxes are good examples of continuous deductions. These taxes are qualified for deductions from the main income tax that the owners pay. The best feature is that, these taxes can be deducted for all the years that the home is owned.

Seller costs

2011 also saw a huge increase in selling of residential properties. The owners opted to sell their present residences to either upgrade or downgrade their primary source of residence. This year was the perfect time to do renovations as interest rates were at a record low and the purchase prices were at an all time bottom. A seller had to incur lots of expenses like the agent’s commission on real estate properties, advertising and marketing fees and fees when a new mortgage is established by the buyer. However, the good news to the seller was that, all of these expenses qualified for the full tax deductions, thereby reducing their burden to a great extent.

Mortgage interest

Mortgage interest is an example of a continuous or ongoing deduction that a home owner can enjoy. In the initial years of owning the home, the mortgage interest is high; hence one can enjoy higher tax deductions. The full interest that is paid for the entire tenure of the property gets qualified for the full tax deductions

These are few examples of making home expenses as effective tax saving tools. One must be fully aware of residential tax properties, especially when one owns residential properties. This is the best way to maximize the benefits of the IRS schemes. This is a way to offset the huge amount invested for buying property. The IRS always suggests using a professional tax advisor to help in matters of the tax savings so that one can get the optimum benefits.

Million Dollar Homes and Tax Audits

Do you own a home for which the mortgage is more than $ 1 Million?

If yes then it is a wise idea to check how much mortgage interest you have been deducting from your tax returns over the past few years. All home owners who owe more than a million dollars on their home loans have come under the scanner of the IRS. The scrutiny has been taken up over confusion on the mortgage interest that customers are eligible to deduct from their tax liability. Tax payers who owe more than $ 1 million on their homes could range from tens to thousands. For a mortgage of $ 1 Million the interest could add up to about $50,00o. This amount being substantial has been of great interest and a matter of concern to the IRS department.

Tax rules vary for home acquisition debts and home equity debts. Let me describe each of these in detail .Home acquisition loans are availed to acquire, construct or renovate a qualified property. This kind of a loan is secured by the home. In the case of Home Equity Debt, it is like any other loan and even here it is secured by the home.

Now here comes the catch. While a section of taxpayers argues that it was legal to deduct all interest on a single mortgage of up to $1.1 million, others opposed the claim stating that the limit for mortgages was $1 million, but interest could also be deducted on an additional $100,000 in a home equity loan. In order to end this confusion IRS had set the record straight by stating that loans over and above $1 million could also qualify as home equity obligations.

While the confusion over the interest deductible has been solved for the time being these rules could be very confusing to the common man who cannot afford to seek the opinion of a tax adviser. When customers avail a home loan, it is not the loan alone but there are other surrounding components that get added to the loan. One of the important aspects in a home loan is the refinancing option. While IRS has not specified how such complex cases need to be dealt with, there have been a lot of home owners who have been pulled up during mini-audits conducted by the IRS. In the past six months alone, IRS has notified a number of people that their mortgage interest write-offs are being scrutinized.

As per the existing tax rules, tax deduction on mortgage interest is allowed on the first and second home but not on homes exceeding two in number. While the rules are clear cut and comprehensive in a lot of situations there are certain circumstances where the rules are not clear and exhaustive.

Are you still confused about your tax liability even after reading this article? If yes, then it is advisable to get help from a qualified CPA in order to avoid complications at a later date during an IRS audit.