Prepping for Taxes: Don’t-Miss Home Tax Breaks (Part 3)

Vacation Home Tax Deductions
The rules on tax deductions for vacation homes are complicated. Do yourself a favor and keep good records about how and when you use your vacation home.
  • If you’re the only one using your vacation home (you don’t rent it out for more than 14 days a year), you can deduct mortgage interest and real estate taxes on Schedule A.
  • Rent your vacation home out for more than 14 days and use it yourself fewer than 15 days (or 10% of total rental days, whichever is greater), and it’s treated like a rental property. Those expenses get deducted using Schedule E.
  • Rent your home for part of the year and use it yourself for more than 14 days and you have to keep track of income, expenses, and divide them proportionate to how often you used and how often you rented the house
Homebuyer tax credit
(There were federal first-time homebuyer tax credits in 2008, 2009, and 2010)
 
If you claimed the homebuyer tax credit for a purchase made after April 8, 2008, and before Jan. 1, 2009, you must repay 1/15th of the credit over 15 years, with no interest.

The IRS has a tool you can use to help figure out what you owe each year until it’s paid off. Or if the home stops being your main home, you may need to add the remaining unpaid credit amount to your income tax on your next tax return.

Generally, you don’t have to pay back the credit if your bought your home in 2009, 2010, or early 2011. The exception: You have to repay the full credit amount if you sell your house or stop using it as primary residence within 36 months of the purchase date. Then you must repay it with your tax return for the year the home stopped being your principal residence.

That repayment rules are less rigorous for uniformed service members, Foreign Service workers, and intelligence community workers who get sent on extended duty at least 50 miles from their principal residence.

Members of the armed forces who served overseas got an extra year to use the first-time homebuyer tax credit. If you were abroad for at least 90 days between Jan. 1, 2009, and April 30, 2010, and you bought your home by April 30, 2011, and closed the deal by June 30, 2011, you can claim your first-time homebuyer tax credit.

Property tax deduction
 
You can deduct on Schedule A the real estate property taxes you pay. If you have a mortgage with an escrow account, the amount of real estate property taxes you paid shows up on your annual escrow statement.

If you bought a house this year, check your HUD-1 Settlement statement to see if you paid any property taxes when you closed the purchase of your house. Those taxes are deductible on Schedule A, too.

Source: HouseLogic.com - Don’t-Miss Home Tax Breaks by Dona DeZube
Read more: http://tinyurl.com/houselogictaxes
This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.
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