As we rapidly progress toward tax time, April 15, in an atmosphere of economic doom and gloom, there are still some positive situations from which a homeowner can benefit in dealing with homeownership. This article offers a variety of suggestions on tax deductions for homeowners over the 2008 and 2009 tax seasons that you may want to pass along to your clients.
Due to the current economy, homeowners will want to be aware of these important tips, and know whether they qualify for specific deductions, when it is time to submit their tax return.
These tips will provide a focus for current year taxes as well as years going forward.
1. New Home Due to Relocation Tax Deductions
If you purchased a home due to a transfer or new job, you may also have some deductions based on the following requirements: the new location must be 50 miles (one way) or further from your new job than if you had not moved. So, you cannot take this deduction if you are moving within the same city or neighborhood.
The move has to have occurred within a year of starting the new job. You must have worked full time (for any employer) for 39 weeks during the year following the move as long as the location of your new employer is in the general neighborhood of your new home. You can still claim this deduction if, for some reason, you were laid off or disabled before the end of the 39 week timeframe. If you were fired, that is another story.
There is an additional caveat for those who are self-employed. Not only do you have to adhere to the 39 week timeframe, but you also have to adhere to a 78 week timeframe within the two years following the relocation.
You can also claim other deductions associated with this type of move. The cost of packing and moving personal effects, transportation of a car or pet, the cost associated with the valuation and storage of your personal affects. The storage deduction has a limit. It has to be 30 consecutive days starting the day your personal effects were no longer in your possession.
Personal, one-way transportation and temporary accommodations (hotel, motel, etc.) can be deducted. One of the really nice aspects of this deduction is that there is no cap on moving personal effects or family travel to your new home. However, as we all know, it is a good idea to play it really straight with the IRS.
On the flip side, there are moving-related expenses which cannot be deducted. This would include things such as mortgage penalties, cost associated with the sale of your existing home, meals while you are moving and many others. Once again, you may want to consult a tax professional.
2. Environmentally Efficient Home Improvement Tax Deductions
We are all encouraged to “go green” and this has ramifications on our tax deductions. Effective in 2006, the 2005 Energy Policy Act provides tax incentives for those people looking to use green technology. Solar water heaters, geothermal heat pumps and solar panels are prime examples of using green technology to enhance a property, save energy and receive tax incentives.
If you install an energy cell system with an efficiency rating of 30% and a capacity of one half kilowatt, you can receive a 30% credit towards the purchase of the energy cell. You can also receive $1,000 for every kilowatt produced by the system. If the materials are Energy Star certified, you can also deduct a percentage of the cost of improvements to doors, windows and flooring.
Last month, President Obama signed The American Recovery and Reinvestment Act of 2009. Energy efficiency tax credits were extended into future years. Credit percentages have been increased and caps on certain improvements have been removed.
Speaking of 2009, let’s take a look at some new tax credits. We have been hearing about this tax credit as Congress has been deciding upon the limit and terms. There are a specific set of circumstances which will dictate whether or not you are eligible for this credit or not.
You must be a first-time home buyer or you do not qualify. The U.S. Department of Housing and Urban Development (HUD) defines a first-time home buyer as follows:
- An individual who has had no ownership in a principal residence during the 3-year period ending on the date of purchase of the property. This includes a spouse (if either meets the above test, they are considered first-time homebuyers.
- A single parent who has only owned with a former spouse while married.
- An individual who is a displaced homemaker and has only owned with a spouse.
- An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations.
- An individual who has only owned a property that was not in compliance with State, local or model building codes and which cannot be brought into compliance for less than the cost of constructing a permanent structure.
So, if you meet these criteria, the following terms of the new tax credit apply.
- The tax credit does not have to be repaid.
- The tax credit is equal to 10% of the home’s purchase price up to a maximum of $8,000.
- The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
- Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
3. New Construction Tax Deductions
If you had a home built by a contractor as opposed to a home which had already been constructed, you can still qualify for this credit if the home is your primary residence and the first day of occupancy occurs between the aforementioned dates.
This tax credit is “refundable”, which is good news. This means that the credit can be claimed even by those people who have little or no tax liability. So, if you only owed the IRS $500 and claimed the tax credit, the IRS would then send you a check for $7,500.
To claim this tax credit, just file Form 5405 to determine the amount of the credit. Then, post that credit on Line 69 of the 1040 form. If a home is purchased in 2009, but the individual’s 2008 return claimed the $7,500 tax credit which was the former total credit, the individual can file an amended 2008 return using Form 1040X to claim the remaining $500.
It may be wise to consult someone familiar with tax preparation since there are certain details that may affect you for these deductions. For example, mortgage interest and points can only be deducted if the loan is secured by your main home and the loan is less than $1,000,000 ($500,000 if filing separately). You must amortize the points paid over the term of the loan if the property is not your primary residence.
As most homeowners know, owning a home entails tax deductions such as mortgage interest and property taxes. However, there are a few other things which are important for a homeowner to keep track of for tax season such as: closing cost, abstract fees, title and search fees, recording fees, survey fees, transfer taxes, points paid, load origination fees, maximum loan charges, load discount or discount points.
Some of the current tax benefits of home ownership have been discussed in this article. Consult with a tax professional to ensure that you are not only taking full advantage of these incentives, but also that they are claimed properly. A fee the professional charges you for tax preparation is deductible the following year.
The economy is difficult. Housing from new construction to existing homes, home values as well as the job market are in a steep decline. However, there are things you can do to help alleviate some of the pain. Looking into some of these improvements and tax credits will not only enhance the comfort and value of your home, but will also provide tax breaks.
HomeGain does not advise on any personal income tax requirements or issues. Use of any information from this site or any other web site referred to is for general information only and does not represent personal tax advice either express or implied. You are encouraged to seek professional tax advice for personal income tax questions and assistance.