Fun Tax Talk
I find it interesting that tax preparers seem to get a deviant kind of pleasure (thankfully) creating tax "puzzles" when doing tax returns. For me, however, I just don't find much amusing about taxes. In fact, when I go for my tax appointment, all I do is hold my breath and wait to see if my tax guy tells me if I owe more money! Not much fun in that!
Nonetheless, taxes are an important topic at this time of year. Ironically, this first discussion centers around a tax that was a tax for most of the year after which it became a non-tax when congress retroactively extended the Mortgage Protection Debt Relief Act which negated the receipt of a 1099 for owner-occupants participating in a short sale. Here's the thing, because there was no guarantee that the amount forgiven on a short sale would be tax free, many owners chose to simply transfer the property back to the bank.
If you bought or sold property (short sale or not) in 2014, be sure to provide your settlement statement (Final HUD 1) to your tax preparer. If you don't have a settlement statement, your REALTOR® or escrow agent will be happy to provide it. You should keep a copy in your permanent files. It will come in handy when the property is sold.
Remember, most PMI (Private Mortgage Insurance) payments are deductible as well. If you paid less than 20% down payment when you purchased your home, you are likely paying PMI. The payment amount will be reflected on your monthly statement.
There's a lot of discussion on the news right now about photovoltaic systems. The current discussion centers on HELCO payments to owners but there is talk about adjusting the tax credits. If you purchased either a solar hot water or a photovoltaic system in 2014, you should be due a healthy tax credit. Remember tax credits reduce your tax bill. If you are considering purchasing a system this year, you shouldn't dilly dally.
Other energy efficient tax credits for upgrades to your home are often overlooked. Installation of energy efficient windows, insulation, exterior doors, biomass stoves (whatever that is) and upgrading heating and cooling systems are eligible for a cumulative $500 tax credit. For new homes, there are federal credits up to 30% for solar, geothermal heat pumps, wind turbines and the like.
Don't forget, if you sold a home for which you occupied as your principal residence 2 of the last 5 years, you should not be taxed on any profit up to $250,000 for a single person or $500,000 for a married couple. It's nice to see people actually having this problem! Unless you used a portion of your home for business, it's my understanding that you should not receive a 1099-S for proceeds. If you do, you should contact the issuing agent right away. Section 121 on IRS.gov also talks about times when exceptions to the occupancy rule apply. Military folks or people who had a job transfer for instance, may be entitled to a partial exception.
Last, remember that tax credits as well as mortgage interest deductions are only available to homeowners. With rents rising, reasonable pricing and interest rates historically low, there's no better time for tenants make time to visit with their favorite REALTOR®!
(This is for information purposes only. Please verify specifics with your tax preparer).