If you’re a homeowner, taking the right tax deductions should be something you can do yourself. For full disclosure, once I started being a landlady, I got my accountant to file my taxes because the Schedule E, for rental income, on top of the Schedule C, for my freelance business, was too much for me. All the same, if you’re a straight-up homeowner, neither despair nor let your eyes glaze over.
Here are the big sources of deductions you should take – and where to put them on your tax form:
1. Mortgage Interest.
You can deduct interest on a property that is your primary or secondary home, up to the first million of debt per couple. So if you buy a $400,000 home with a $350,000 mortgage, the interest on that $350,000 mortgage is tax-deductible.
How do you know the amount? Sometime around now, your lender should be sending you a Form 1098 which indicates how much mortgage interest you paid last year. That number goes right on your taxes, on Schedule A, where you itemize deductions.
2. Property Taxes.
If you pay property taxes – whether they’re city taxes, or county taxes, or school board taxes (yep, some people pay all three) you get to deduct that amount off your income taxes. Again, this goes on your Schedule A – so that’s one more reason to itemize. (Last year, you could deduct a small amount of property taxes without filing a Schedule A, but those &%$! changed the tax code. Sorry.) I found that my city never sent yearly statements, so I just used the amounts from the receipts I had stuck in a folder during the year. If you didn’t have a folder like that for 2010, make one now for 2011! This is one of those pain-in-the-neck things that saves you money, so planning for it ahead of time can ease some of the annoyance.
3. First-Time Homebuyer Tax Credit.
This isn’t for everybody, but if you bought a home last year, you might be eligible for the first-time homebuyer tax credit. You need to have been in contract by April 30, 2010 and to have closed by a certain time last year – the deadline was originally June 30, 2010, but in some cases it was extended to September 30. If you fall into the grey area, follow this first-time homebuyer tax credit link from the IRS and then listen to the podcast that is at the top of the page.
To claim this credit, you’ll need your closing settlement statement, which is often referred to by real estate agents as your “HUD-1” (because that’s the number of the form). Make a copy of this form and put it somewhere where you can find it because you’ll need it again when you sell.
4. Mortgage Origination Points.
If you “paid points” to buy down your interest rate, you weren’t paying a fee – rather, you were taking some of the interest on your mortgage and paying it up front. Since it’s really home loan interest, it’s also tax deductible. These should be on your 1098 (probably in a different box than the mortgage interest number we mentioned above). Check if they weren’t on that form, because the amount you paid ought to also be on your HUD-1. Guess where this amount goes on your tax return? Yep, you got it, Schedule A.
The government is giving out tax breaks to homeowners, so the very least you can do is to scoop them up.