04/06/2016
Last Minute Tax Advice!
With the April tax deadline around the corner, I wanted to share some useful tax deduction information that you could pass along to your clients. Even if they have already filed, the information below is great to have on hand.
Mortgage Insurance
Anyone with less than 20% equity in their home must pay mortgage insurance, this can be paid either in the form of mortgage interest or monthly MI depending on the type of mortgage insurance that was obtained at the time the loan was originated. This can typically cost between 0.5% to 1% of the entire loan amount each year, so deducting those payments can add up fast if you have a large loan balance. Please make sure to check the income restrictions for specific MI deductions with your CPA or the IRS.
Mortgage Points
When a borrower pays points on their loan to get a better interest rate, they need to make sure they also deduct that cost on their taxes. On a purchase transaction this fee is deductible the same year the home was purchased, on a refinance transaction, the points need to be deducted over the amortization period of the new loan.
Casualty Loss
In the unfortunate case of storm or fire damage to your home, you may be able offset some of your losses. While you can’t get a deduction on losses that your insurance coverage has already compensated, you may still receive some tax benefit from losses your insurance didn’t cover. Completing some basic math on Form 4684 will help you understand how much of your losses are tax-deductible.
Home Office
If you work out of your home, a portion of costs such as; utilities, insurance property taxes and general repairs may be eligible for deductions. The portion of your home that is used as an office will be the amount that you can deduct for the total costs. For example, if your office takes up 10% of your home, 10% of each of those costs may be eligible. There are restrictions on what constitutes a home office, so make sure to consult a tax professional for guidance.
Residential Energy Credit
While not technically a deduction, the fact that this is a straight credit can mean a lot. This will give you a 30% tax break on large purchases like solar panels or a geothermal heating unit, as well as smaller amounts on items like water heaters.
The above is for informational purposes only and you should consult a tax professional before making any decisions that will impact your tax filing.
