Skip to main content

Year End Tax Newsletter

One of the first steps in a good outcome is knowing a little bit about what you're about to undertake.  By being aware of some of the areas regarding homes that may not come up every year in a tax return, you'll be able to point them out to your tax professional or seek more information from IRS.gov.

Look through this list of items for things that could affect your tax return.  Even if you have relied on the same tax professional for years to look out for your best interests, they need to be aware that there could be something different in this year's return.

If you bought a home for a principal residence last year, check your closing statement and identify any points or pre-paid interest that you or the seller paid based on the mortgage you received.  These can be deducted on your Schedule A as qualified home interest if you itemize your deductions.  See Home Mortgage Interest Deduction | IRS Publication 936 (2018 version not released as of this newsletter).

Keep track of all money you spend on your home that might be considered a capital improvement.  Get in the habit of putting receipts for money spent on your home that is not the house payment or utility bills.  Repairs are not tax deductible but improvements, even small ones, can be added to the basis of your home which can lower the gain when the home is sold.  Years from now, your tax preparer can sift through them and determine whether they're capital improvements or maintenance. See Increases to Basis | IRS Publication 523 Selling Your Home (2018 version not released as of this newsletter).

By making additional principal contributions with your mortgage payment, you'll save interest, build equity and shorten the term of a fixed-rate mortgage.  See Equity Accelerator.

If you sold a home last year, the payoff on your old mortgage included interest from the last payment you made to the date of the payoff.  That interest is tax deductible.  You may need a breakdown of the payoff to the mortgage company; you should be able to get that from your closing officer.

If you refinanced your home, unlike a home purchase, points paid to refinance are not deductible as interest in the year paid; they must spread ratably over the life of the mortgage.  See Home Mortgage Interest Deduction | IRS Publication 936 (2018 version not released as of this newsletter).

For homeowners who have lost a spouse, there is an exception regarding the exclusion on the sale of a principal residence.  If the surviving spouse concludes a sale of the home within two years of the death of their spouse, they may exclude up to $500,000, instead of $250,000 for single taxpayers, of gain provided ownership and use tests are met prior to death.

The two-year period begins on the date of death and ends two years after that date.  See Sale of Main Home by Surviving Spouse | IRS Publication 523 Selling Your Home (2018 version not released as of this newsletter).

There could be significant tax consequences to a person selling a home that was received as a gift as compared to receiving the home through inheritance.  With a gift, the basis of the donor becomes the basis of the donee.  With inheritance, the heir usually gets a stepped-up basis and avoids potential unrecognized gain.  See Home Received as Inheritance | IRS Publication 523 Selling Your Home (2018 version not released as of this newsletter).

Click here to download a Homeowners Tax Guide.  This is meant for information purposes only and advice from a qualified tax professional should be sought to find out about your individual situation.tax guide 001.png

Comments

Popular posts from this blog

Make Your Home Offer the Most Appealing

Sales in February 2023 were up 14.5% month over month and still down 22.6% year over year according to the NAR Housing Snapshot.   The median sales price dipped 0.2% to $363,000 and there are 2.6 months supply of homes on the market compared to 1.7 months a year ago. "Inventory levels are still at historic lows, and consequently, multiple offers are returning on a good number of properties." According to Lawrence Yun, Chief Economist for the National Association of REALTORS�. It is still important to have a strategy for potentially competing with other buyers on the house you want to buy.   The plan should include several available provisions and options, so that at the time of drafting the sales offer, you can consider exactly what to include based on the situation. Unless a person is paying cash, you need to be pre-approved by a trusted mortgage professional long before you start looking at homes.   Include the written pre-approval letter along with the offer

Rethinking Backup Offers

Like with any professional, there are tools and techniques available to help with particular situations.   They might be more popular at certain times and might even be put aside or forgotten at others. For real estate professionals, one of those is the backup offer.   In a situation where there are multiple offers, the seller can accept any offer for whatever reasons are important to them, leaving the makers of the other offers disappointed.   There is always some uncertainty that the buyers on a contract will close accordingly.   To hedge on that possibility, the seller may choose to make a counteroffer to one or more of the other offers to be a backup should the primary contract not close. From a buyer's perspective, the purpose of a backup offer is to be next in line to have the chance to purchase the property should the first contract fall through. The benefit is that you'll be next in line to purchase the home without having to submit another offer and possi

Getting Comfortable with the New Normal Mortgage Rates

The biggest shock to homebuyers is the soaring mortgage rates of 2022 that doubled in one year resulting in approximately 15 million mortgage ready buyers displaced from the market due to affordability issues. As of February 23, 2023, the 30-year fixed rate mortgage was at 6.5%.   While that is twice as high as it was on January 6, 2022, it is still lower than the 7.75% average rate since April 2, 1971, according to the Freddie Mac Primary Mortgage Market Survey. When rates increase at a rapid pace like this, it takes time for the public to adjust and begin to accept it as the new normal. Prior to the housing bust that led to the Great Recession, the normal for mortgage rates was in the 6% range and existing home sales were over 6.5 million for three years.   From 2007 to 2014, home sales were closer to 5 million with 2008-2011 at just above 4 million annually. From January 17, 2008 to March 5, 2020, mortgage rates averaged 4.32%.   In this 12-year period, buyers exper