Spring has officially arrived in New Buffalo and, while the new buds and vibrant colors are a welcome site, the beginning of this season also reminds us that tax day is just around the corner. If you’ve started gathering up the stacks of paper to take care of the past years taxes, we thought a quick reminder about property taxes could be beneficial.
Here at Shoreline Property Advisors, we want to provide you with the most experienced New Buffalo Real Estate agents and the best advice. Our years of working with buyers, sellers and investors in New Buffalo and along the Lake Michigan Shoreline can allow you to rest assured you that when you come to us, you’ll get the quality service you deserve.
Below you’ll find nine of the most common property tax mistakes, as pointed out by HouseLogic, you’ll want to be sure to avoid. Whether you’re a first time home owner or have owned your New Buffalo home for years; you’ll want to take a few minutes to review these mistakes that keep homeowners from getting their full refund or may cause questions from the IRS.
Mistake #1: Deducting the wrong year for property taxes- You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind—that is, you’re not billed for 2011 property taxes until 2012. But that’s irrelevant to the feds. Enter on your federal forms whatever amount you actually paid in 2011, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.
Mistake #2: Confusing escrow amount for actual taxes paid- If your lender escrows funds to pay your New Buffalo property taxes, don’t just deduct the amount escrowed, says Bob Meighan, CPA and vice president at TurboTax in San Diego. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. Your lender will adjust the amount every year or so to realign the two.
Mistake #3: Deducting points paid to refinance- Deduct points you paid your lender to secure your mortgage in full for the year you bought your New Buffalo home. However, when you refinance, says Meighan, you must deduct points over the life of your new loan. If you paid $2,000 in points to refinance into a 15-year mortgage, your tax deduction is $133 per year.
Mistake #4: Failing to deduct private mortgage insurance- Lenders require home buyers with a downpayment of less than 20% to purchase private mortgage insurance (PMI). Avoid the common mistake of forgetting to deduct your PMI payments. However, note the deduction begins to phase out once your adjusted gross income reaches $100,000 and disappears entirely when your AGI surpasses $109,000.
Mistake #5: Misjudging the home office tax deduction- This deduction may not be as good as it seems. It often doesn’t amount to much of a deduction, has to be recaptured if you turn a profit when you sell your New Buffalo home, and can pique the IRS’s interest in your return. Hampton’s advice: Claim it only if it’s worth those drawbacks.
Mistake #6: Failing to track home-related expenses- If the IRS comes a-knockin’, don’t be scrambling to compile your records. Many people forget to track home office and home maintenance and repair expenses, says Meighan. File away documents as you go. For example, save each manufacturer's certification statement for energy tax credits, insurance company statements for PMI, and lender or government statements to confirm property taxes paid.
Mistake #7: Forgetting to keep track of capital gains- If you sold your main home last year, don’t forget to pay capital gains taxes on any profit. However, you can exclude $250,000 (or $500,000 if you’re a married couple) of any profits from taxes. So if you bought a home for $100,000 and sold it for $400,000, your capital gains are $300,000. If you’re single, you owe taxes on $50,000 of gains. However, there are minimum time limits for holding property to take advantage of the exclusions, and other details. Consult IRS Publication 523.
Mistake #8: Filing incorrectly for energy tax credits- If you made any eligible improvements, fill out Form 5695. Part I, which covers the 30%/$1,500 credit for such items as insulation and windows, is fairly straightforward. But Part II, which covers the 30%/no-limit items such as geothermal heat pumps, can be incredibly complex and involves crosschecking with half a dozen other IRS forms.
Mistake #9: Claiming too much for the mortgage interest tax deduction- You can deduct mortgage interest only up to $1 million of mortgage debt, says Meighan. If you have $1.2 million in mortgage debt, for example, deduct only the mortgage interest attributable to the first $1 million.
We hope that by reviewing these tax mistakes, you can avoid them! As the team here at Shoreline Property Advisors, we want to not only help you buy and sell in New Buffalo, but provide you with information that will allow you to enjoy your home and the New Buffalo lifestyle.
Please feel free to contact us anytime you have a question about the New Buffalo Real Estate market or have a real estate need! We look forward to serving you however we can!
Shoreline Property Advisors
@ Prudential Rubloff
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