BLOG: Death and Taxes

You all know the saying about the two guarantees in life. So unless they have internet in heaven, the first one doesn’t apply, and as you’re reading this in the United States, the second one does! 

April 15 is right around the corner, although because that’s a Saturday and Monday is a legal holiday, your taxes aren’t technically due until April 17. But now is the time to be gathering all of your data  to file prior to the deadline. If you are expecting any type of refund – the sooner, the better!

Home ownership still provides one of the best tax advantages around. So make sure you are maximizing your benefits by claiming all eligible write-offs. Here’s a quick list of some of the eligible deductions and the forms you need to claim them.

• Mortgage interest - IRS Form 1098. The best real estate tax deduction ever is the one that allows you to deduct 100 percent of the mortgage interest you paid in a year - including prepaid interest (points) you might have paid if you bought a home last year.
• Property taxes.  In addition to deducting your mortgage interest, you can also deduct the property taxes you pay to your local city, county and/or state. You can’t deduct some of the other charges that are lumped with the taxes, like waste management and local assessments though. To get the number right, be sure to have your property tax statements on hand, and make sure you’re only deducting what’s allowed.
• Uniform Settlement Statement – HUD-1.  If you bought or sold a home last year, right after closing you should have received a form called the HUD-1 Settlement Statement (it’s usually on legal-sized paper and contains a full accounting of credits and debits for you and your home’s buyer or seller). That form documents a number of line items which might help you out at tax time, including prepaid interest, the prorated property taxes you paid at closing, and closing costs like original fees and discount points.
• Moving expense receipts.  Moving expenses are tax deductible if your move is closely related to the start of work at a new job or job relocation. You must meet the IRS’ time-and-distance test, which is that your new home must be at least 50 miles farther from your new workplace than your old home was from your prior place of work, and you must work full-time. If you meet the criteria and moved in 2011, you’ll need your receipts for the expenses you incurred making the move.
• Cancellation of Debt Statement - IRS Form 1099.  This one is a biggie! Homeowners who lost a home to foreclosure, short sale, or deed in lieu of foreclosure might receive some version of a 1099 form charging them with income in the amount of the mortgage debt that has been cancelled. To the IRS, this is income but with the Mortgage Forgiveness Act, you may be OK. Make sure to talk to your tax professional if you received a 1099 from your lender.
• Utility statements for a home office.  For most homeowners who go to an office or place of business to work, utilities are not deductible (sorry!). But if there is a part of your home that is “regularly and exclusively” used for business, you may be able to claim that portion of your home as a home office and deduct a portion of your home utilities and costs of painting and repairs, as a result.
• Income and expense from rental properties.  If you are a landlord, your tax situation is a little more complicated than most, and you need to have a complete income and expense accounting for any rental properties you own when you put your tax returns together. This can be a little tricky and you will probably want to consult with a tax professional to make sure you are taking all eligible deductions.
• Receipts for energy efficient home improvements.  Are you going “green?" Under the Non-business Energy Tax Credit, homeowners who made improvements to their homes that fall within a list of energy-efficient upgrades may be eligible to claim tax credits. Again, you will need all your receipts to claim these deductions.

No matter what your tax bracket and income is, if you own a home (or two), it’s probably in your best interest to get some professional help and advice to make sure you maximize your deductions AND minimize your exposure to audit.  Nine times out of 10, the tax professional or CPA will more than earn their fee by helping you save money. 

For more information go to www.irs.gov.