Tax Planning for Next Year
I can hardly believe that tax weekend is right around the corner. Luckily, mine are filed and are, as Anna wrote a few weeks ago, EZ. But I do look forward to the day when I can enjoy all the benefits of owning a home, including the financial benefits.
Say, you’re planning to buy a home for sale this year or next – timing your purchase right can help you reap great tax credits for next year’s return. Now it’s not like anyone buys a home just for the deductions. First and foremost, you need to figure out when is the best time for you to buy, considering your finances, any upcoming life transitions, children if you have them, real estate market conditions, etc. But if you’re out looking—perhaps as part of our Drop in and Win spring sweepstakes—and you could use a break in 2013, there’s definitely financial incentive to make you purchase!
The most common deduction is mortgage interest, which we covered a few weeks ago. Since a good chunk of your monthly payment goes toward interest, this makes for significant savings. To get the latest info and plan for next year, check out the IRS’s guide.
Okay, how else can you save? Depending on the tax year, there are a variety of credits available. Be vigilant about checking the IRS’ website for any applicable credits that will end in December and talk to a financial advisor or tax accountant to see what kinds of things you’ll qualify for. In general, there are a few other credits that are worth considering.
Real estate taxes can be tricky to reduce, but one thing you can do is prepay the interest for your January house payment. If you pay it in December, you’ll have 13 months to deduct rather than 12. The catch: if you don’t continue prepaying in December, you’ll only have 11 months to deduct when you stop. So consider this a helpful financial boost if you’re expecting a tight year money-wise.
If you buy during 2012, you will be able to deduct property taxes for the part of this year that you own the home. Of course, you’ll be paying those taxes, but it’s good to keep in mind for your 2012 return.
Also, double-check that your assessment is accurate – if there are any mistakes, you could be paying higher taxes! On the other hand, remember that certain home improvement projects that significantly affect your property’s value will be added into the amount you owe.
Refinancing Your Home Loan
According to Fox Business, there is a tax break for underwater homeowners that’s set to expire at the end of 2012. If you can successfully negotiate with your lender for a debt reduction, you may be able to exclude up to 2 million if the forgive debt is for your primary residence. Even though it’s only April, don’t wait to pursue this option if you think you can qualify.
Moving In or Moving Up
Whether you’re leaving your renting days behind, moving across the country for a new job, or selling your home and, you may be able to deduct moving expenses.
Your move must…
· be related to the start of a new job – you don’t have to move for the new job, but you need to begin working within a year of your move
· meet the distance test – your new job must be at least 50 miles farther from your home than your old job
· meet the time test – you must have worked at the new job for either 39 weeks or 78 weeks after you move (whether you are an employee or self-employed, respectively)
Again, check out the IRS’s publication on moving credits and talk to a specialist if you are unsure.
Even if you’re not moving for a new job, if you’re clearing out clutter, charitable donations you make will be tax-deductible. Make sure you get a receipt if you drop off your items at a secondhand store.