Are you ready to file your taxes? Tax season is in full effect — remember that this year the last day to file taxes is April 18th. As you are filling out your tax forms, homeowners in particular may have questions about how to properly file their taxes.
There are many tax benefits to homeownership, but some people do not take full advantage of them. Studies have shown that only one in three taxpayers itemize deductions, but millions more should – especially homeowners.
So, aside from compiling your W2’s and receipts, what do you need to know when it comes to taxes and your home? We reached out to Nathan Rigney, a senior tax research analyst at The Tax Institute at H&R Block to find out some common mistakes, and answer some common questions about filing your taxes as a home owner.
See Nathan’s responses below:
What is the most important thing for home owners to do when filing taxes?
Life changes, like buying or selling a home, often mean tax changes. Not understanding these changes can lead taxpayers to make mistakes and leave money on the table, potentially impacting their refund at a time when the average refund is about $2,800. Using a tax professional will allow them to learn about the tax benefits they may or may not qualify for and other tax strategies to minimize their tax liability and maximize their refund.
Homeowners should make sure they have records of any mortgage interest, mortgage insurance premiums, or real estate tax paid during the year. These amounts are often reported on a Form 1098 issued by the mortgage company.
What are deductions that home owners often forget to use?
For the 2016 tax year, mortgage insurance premiums are deductible as itemized deductions in addition to mortgage interest and real estate tax.
Owning a home adds a level of complexity to your tax return, but it also makes it more likely that itemizing tax deductions will be worthwhile for you. Only one in three taxpayers itemize but millions more should – especially homeowners.
Itemizing allows taxpayers to deduct qualifying:
- Charitable donations,
- medical expenses that exceed 10% of AGI (7.5% of AGI if taxpayer or spouse is 65 or older),
- personal property taxes
- real property taxes
- state income or sales taxes
- casualty losses and
- miscellaneous expenses such as employee business expenses.
Are there any changes to home owner deductions in 2017?
The mortgage insurance premium deduction expired at the end of last year. For the 2014 tax year, 4.2 million returns deducted a total of $5.9 billion in mortgage insurance premiums. Homeowners may deduct their mortgage insurance premiums paid in 2016 but will not be able to deduct their 2017 premiums.
The mortgage debt forgiveness exclusion, which provides substantial tax relief for families whose principal residence has been foreclosed, also expired at the end of 2016. Homeowners affected by foreclosure or mortgage restructuring excluded $94,210 on average in forgiven mortgage debt from their taxable income in 2014. But just because the mortgage debt forgiveness exclusion has expired does not mean that taxpayers must include forgiven mortgage debt in their income in 2017. For example, a tax professional could help a taxpayer determine if they may qualify for an exclusion under a different provision of the tax code.
Both of these changes are in effect for 2017, which means taxpayers filing their 2016 tax returns may still claim these tax benefits for premiums paid or debt forgiven in 2016.