Last Minute Tax Advice

The April 15th tax deadline is almost here, and even though most Americans have already filed their taxes — especially if they were due a refund — the IRS says 20 to 25 percent of us will wait until the last minute. If you’re one of those last minute procrastinators, here’s some last minute tax advice to help you muddle through it again this year.

Remember what Stacy said in the video… don’t panic and rush through your returns. If you don’t have time to do them, follow his tax advice and just file an extension. It won’t give you more time to pay (if you owe) but it will give you more time to file and do things right.

Here’s some more last minute tax advice: If you qualify, there’s still time to lower your 2012 taxes by putting money in a deductible IRA. You have until April 15 to stash up to $5,000 in your IRA for 2012; anyone 50 or older at the end of 2012 can squirrel away up to $6,000. If you’re in the 25% tax bracket, a $5,000 contribution will save you $1,250 on your 2012 tax bill. But if you have a retirement plan at work, the right to make deductible contributions begins to phase out at $58,000 for single taxpayers and $92,000 on a joint tax return.

We have more tax advice and tips here at our web site. Just click over to the Taxes articles under our Boston Real Estate Categories to your right.

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Tax Breaks For Boston Homeowners

Boston homeowners get a lot of tax breaks.Boston homeowners will soon be turning the calendar and looking squarely at April 15, the day income taxes are due. If you haven’t already done your taxes, you should be gathering up your W2s, 1099s, bank statements and receipts. If you’re missing anything, you don’t want to wait until April 14th to figure that out.

A few Congressional scares slipped by the cutting block again, at least for this year. Congress did not modify or repeal your right to deduct the mortgage interest you pay for being a Boston homeowner. There are, however, some limitations for high-income earners. If you are single and earn more than $400,000 (or more than $450,000 if married), personal exemptions will be phased out and itemized deductions will be limited. If you fall in that category, you should discuss your specific situation with your tax or financial advisers.

Congress did not increase the capital gains tax rate for people who are not high-income earners. If you sold your principal house and lived there for at least two of the five years before it sold, you can exclude up to $250,000 of your gain if you are single (or up to $500,000 if you are married and file a joint tax return).

5 Major Tax Tips For All Boston Homeowners This Year

1 – You have to itemize. If you’re looking to get tax deductions for a home you bought, something you did to your home, or something that happened to your home, you’re going to have to itemize your deductions, rather than taking the standard deduction. Fortunately, if you’re filing through TurboTax or another credible online program, you can itemize everything and then see whether or not you’ve topped the standard deduction, saving you a lot of complicated math.

2 – The Interest Deduction. The interest paid on your mortgage for being a Boston homeowner might be good for a tax break. If you paid interest on your mortgage in 2012, it may be deductible. Basically, if you are itemizing deductions and you are filing a 1040, and your home loan qualifies, you can write off some or all of the interest you paid.

If you became a new Boston homeowner in 2012, on a mortgage of up to $1 million, you can deduct the interest you paid at settlement if you itemize your deductions. This amount should be included in the mortgage interest statement provided by your lender.

If you paid points to obtain your mortgage, these fees are included on the income tax deductions list and can be deducted as long as they are associated with the purchase of the home. If you refinanced your home, these points are still deductible, but it must be done over the life of the mortgage.

3 – Property taxes.  Property taxes are sort of all over the map in the U.S., but a lot of areas offer tax breaks on property taxes as incentives for homeowners. Property tax exemptions vary not just by state, but by jurisdictions within each state. Research and paperwork might require some time, but the effort could lower your tax bill noticeably if you’re a Boston homeowner.

4 – Home Office. More and more people are working from home these days (unless you work for Yahoo!). If you use a portion of your home exclusively for the purpose of an office for your small business, you may be able to claim a deduction on your taxes for costs related to insurance, repairs and depreciation. You may only claim this deduction if the space within your home is used exclusively and regularly as either your principal place of business or a place where you meet and deal with customers or patients. You may also be able to take advantage of this deduction if a portion of your home routinely is used for storing items (product samples, inventory, etc.) used in your business.

5 – Home Improvements. As a Boston homeowner, if you installed new, energy-efficient appliances, doors, windows, or other systems in your home and haven’t exceeded the consumer energy efficient credit in previous years, you can save up to $500 (or even more), just for going green!

If you’ve taken out a loan to make improvements on your home, you may be able to deduct the interest on this loan. Qualifying loans are those taken out to add “capital improvements” to your home, meaning the improvement must increase your home’s value, adapt it to new uses or extend its life. New carpeting or painting are not considered capital improvements, while adding a garage, installing a water heater or building a deck are all examples of capital improvements.

Obviously there are many more deductions you may qualify for as a Boston homeowner, but these are 5 of the most common. We strongly suggest you consult with an accountant or tax attorney if you’re not familiar with all the laws and changes that may or may not affect you as a Boston homeowner.

For more tax tips, hop over to our Taxes Category under the Boston Real Estate Articles to your right. We have a lot of additional tax tips for you there.

When to Expect Your Tax Refund

With tax season upon us again, many Boston area residents are wondering when they might expect to receive their tax refund.

Some people believe that getting a large tax refund is not as desirable as more accurate withholding throughout the year, as a large refund represents a loan paid back by the government interest-free. Optimally, a return should result in a payment owed of just less than would cause a penalty charge, which is 100% of the prior year’s tax (110% for high income individuals), 90% of the current year’s tax, or $1,000 for individuals who have direct withholding and do not pay estimated tax.

However, some people use the tax refund as a simple “savings plan” to get money back each year (even though it is excess money that they paid earlier in the year). Another argument is that it is better to get a tax refund rather than to owe money, because in the latter case one might find oneself without sufficient money in their checking account to make the necessary payment. When properly filled out, the Form W-4 will withhold approximately the correct amount of tax to eliminate a refund or amount owed, assuming the W-4 was filled out at the beginning of the tax year.

If you’re one of the lucky ones expecting to get a tax refund this year, here’s some news about when you can expect to get that tax refund after you file your taxes…

For more information on taxes, including a tax refund and other tax related information, just click over to the Taxes Category under Boston Real Estate Categories to the right.,

Selling Your Boston Home After Making Improvements

If you’re selling your Boston home after you’ve made substantial improvements, known as capital improvements, the money you spent on those improvements could help lower your tax bill when you sell.

Boston home improvements could save you on your tax bill when you sell your home.Tax rules let you add capital improvement expenses to the cost basis of your Boston home. Why is that a big deal? Because a higher cost basis lowers the total profit, or capital gain, in IRS-speak—you’re required to pay taxes on.

The tax break doesn’t affect everyone. Most home owners are exempted from paying taxes on the first $250,000 of profit for single filers ($500,000 for joint filers). If you move frequently, maybe it’s not worth the effort to keep up with your capital improvement expenses. But if you plan to live in your house a long time or make lots of upgrades, saving receipts is a smart move.

How Improvements Can Affect Your Boston Home Cost Basis

To figure out how improvements affect your tax bill, you first have to know your cost basis. The cost basis is the amount of money you spent to buy or build your Boston home including all the costs you paid at the closing: fees to lawyers, survey charges, transfer taxes, and home inspection, to name just a few. You should be able to find all those costs on the settlement statement you received at your closing, also known as your HUD-1 Statement.

Next, you need to account for any subsequent capital improvements you made to your Boston home. Let’s say you bought your home for $300,000 including all closing costs. That’s the initial cost basis. You then spent $25,000 to remodel your kitchen. Add those together and you get an adjusted cost basis of $325,000.

If you lived in your home as your main residence for at least two out of the last five years, any profit you make on the sale will be taxed as a long-term capital gain. You sell your Boston home for $575,000. That means you have a capital gain of $250,000 (the $575,000 sale price minus the $325,000 cost basis). You’re single, so you get an automatic exemption for the $250,000 profit. End of story.

Had you not factored in the money you spent on the kitchen remodel, you’d be facing a tax bill for that $25,000 gain that exceeded the automatic exemption. By keeping receipts and adjusting your basis, you saved about $5,000 in taxes based on the 15% tax rate on capital gains. Well worth taking an hour a month to organize your home-improvement receipts, wouldn’t you say?

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.

Mortgage Interest Deduction Escapes Ax For Now

Mortgage interest deduction escapes the ax, for now.The housing market and the housing industry have escaped the ax on several fronts now that lawmakers have at least partially resolved Washington’s “fiscal cliff” budget fiasco.

A bill passed by Congress to pull the nation back from the brink of end-of-year tax hikes and spending cuts contains several provisions that are favorable to housing.

The housing industry dodged a bullet on a big issue—potential limits on itemized deductions, including the cherished mortgage interest deduction. Last year, there was talk among politicians in both parties of capping those deductions at a particular level, and Republican presidential candidate Mitt Romney suggested several options, ranging from $17,000 to $50,000. But those limits did not come to pass as part of the fiscal cliff deal.

The pact does restore some limits on deductions that had been in place in the 1990s. But they apply only for individuals earning above $250,000 per year and couples earning above $300,000.

These limits reduce how much high-income taxpayers can claim for mortgage interest and other deductions. For example, a couple with a combined income of $350,000 would see their total itemized deductions fall by $1,500. That results from a formula that reduces the amount that can be deducted by 3% of the difference between the taxpayer’s income and the deduction cap. (In this case, $1,500 is 3% of the $50,000 difference between $300,000 and $350,000.)

“This is a meaningful win for the housing lobby generally and, more specifically, the mortgage insurance industry,” according to Issac Boltansky, a Washington analyst with Compass Point Research and Trading.

However, analysts still believe the mortgage interest deduction could be altered as Congress continues to look for ways to save money. Mr. Boltansky says, “While the mortgage interest deduction avoided a direct hit this time around, we doubt it will dodge Congressional scrutiny going forward.”

As always, we will keep you up to date on any further mortgage interest deduction talks that may come out of Washington in future discussions.