TAX TIPS for 2017
TAX TIPS
Hi it’s Josie with Dunn REALTORS forwarding this information from Brian the Home Loan Guy but ALWAYS consult your accountant first. I thought it would be helpful to email you a few Tax Tips that could potential save you hundreds of dollars when you file your tax return this year. From magazines to medical insurance premiums, little-known tax deductions and credits could make Tax Day, a happier one for you and your family this year! Enjoy…
MADE A MOVE DUE TO WORK – If you relocate your residence due to new employment and your new home is greater than 50 miles away from your previous home, you can deduct what you spend on packing and moving your belongings as well some costs for storage, insurance, transportation, and lodging associated with the move. There’s no limit to the deduction.
TEACHER APPRECIATION – Educators, including K-12 teachers, teacher aides, instructors, or principals, can get an above-the-line tax deduction for materials they buy for use in classrooms. Because it’s an above-the-line deduction, itemizing isn’t required for this deduction.
PRICE OF HEALTH INSURANCE – You can deduct the cost of medical insurance premiums that surpass 10 percent of your adjusted gross income, even if you are covered in an employer plan. For those who are self-employed, the 10 percent threshold for health insurance premiums is removed.
WORKING PARENTS – Parents who work and leave their children with a caregiver are eligible for a tax credit to offset the cost of a baby sitter, day care, nursery school or preschool. Limitations on the credit include the age of the child and the percentage of the credit.
HOME OFFICE – The self-employed are eligible for a variety of tax deductions that other workers aren’t. They can deduct a portion of the cost of utilities or even rent for their home office as well as magazines they subscribe to or member organizations in their career field.
FINANCIAL PLANNING – Keeping your finances healthy could land you a healthy tax deduction. Tax planning and investment expenses can be deducted if you itemize and the costs exceed 2% of your adjusted gross income. Investment expenses could include phone calls to your broker or even subscriptions to financial publications like Forbes and Fortune Magazine.
CHARITY – Everyone knows you can deduct charitable contributions, but not work you do for charity. But did you know you can deduct the cost of transportation to a charitable event? Heading to a fundraiser? Keep track of your mileage and deduct it come tax time.
HOME REFINANCE – Refinancing your mortgage could pay off in more ways than one. You will save each month on the interest for your home loan, and you can deduct any loan points you pay on the refinance.
Mortgage Interest
“In 2016, the IRS acquiesced in the Ninth Circuit Voss case, which changes the way the mortgage interest deduction is calculated,” Luscombe said. “The IRS now says it is allowed on a per taxpayer rather than a per residence basis.”
That means that, if you own a home with an unrelated taxpayer, you are now each entitled to a mortgage interest deduction of up to $1 million of mortgage principal for funds used to purchase, construct or improve a home and an additional $100,000 of principal for a loan secured by the home but where the funds are used for other purposes.
“This also creates another marriage penalty in the Tax Code since, if the two taxpayers get married, then they are just entitled to a mortgage interest deduction up to the $1.1 million limit,” Luscombe added.
Mortgage Insurance Premiums & Debt Forgiveness
The deduction for mortgage insurance premiums expired at the end of 2016 but is still available for 2016 tax returns. Likewise, the exclusion for mortgage debt forgiveness also expired at the end of 2016 but is still available for 2016 tax returns.
“In order to try to better determine if taxpayers are claiming the proper amount of mortgage interest deduction, mortgage lenders are now required to report on Form 1098 not only the mortgage interest received for the year but also now the principal amount of the mortgage, the date the mortgage originated, and the address of the property,” Luscombe said. So be sure to download or request a copy of your Form 1098 if you haven’t already received one in the mail.
Energy-Related Tax Deductions
There are two energy-related tax breaks that homeowners can qualify for.
- The nonbusiness energy property credit expired at the end of 2016 but is available for 2016 tax returns. This credit is a $500 lifetime credit for improvements such as energy-efficient windows, doors, insulation and roofs, as well as certain home systems.
- There is also a residential energy efficient property credit for items such as solar and wind installations that currently extends through 2021 but is subject to phase-downs over its final years.
Capital Gains Exclusion
If you’ve owned and lived in your principal residence for at least two of the last five years, then the exclusion for gain on its sale remains available. The exclusion is up to $250,000 of gain for a single taxpayer and up to $500,000 of gain for joint filers, Luscombe said.
Inheritance of Property
When you inherit an asset, the cost basis of the asset is “stepped up to value” on the date of death, which helps you avoid capital gains taxes on that property. Here’s how it works: Let’s say your grandfather just died, leaving a home to you and your siblings. The home is valued at $500,000 at the time of your grandfather’s death, but the original price paid for the home, the basis, when he bought it 30 years ago was $100,000. While you and your siblings may have to pay estate or inheritance taxes depending on the size of the estate, you won’t have to pay capital gains taxes on $400,000 in gains on the house.
“Stepped-up basis on death remains available for a principal residence, as well as other taxpayer assets on death,” Luscombe said. “However, with discussions about eliminating the estate tax and shifting to carryover basis, it is not clear how much longer current law will remain in effect. Stepped-up basis means that the inheritor of the residence who then sells the residence would likely have minimal taxable gain because their basis would be stepped-up to the date of death value of the residence.”
Property Taxes
Currently, real estate taxes with respect to a residence may also be deducted, although tax reform proposals being discussed in Congress would eliminate that deduction.
BE SMART – When filing your return, the quickest and easiest way to receive your refund is to electronically file your return and use direct deposit. If you owe money, use IRS direct pay from your checking or savings account. And whatever else you do, please make sure you keep a copy of your filed tax return. Believe me, it saves so much trouble in so many ways in the event you do happen to need it.
WAYS TO GET HELP FROM IRS.GOV – IRS Tax Tip 2017-08, February 2, 2017
IRS.gov is a convenient place to get answers when it’s time to file a tax return. Many tools and services are here, available 24/7. Here are some helpful ways to use IRS.gov:
- Get Answers to Tax Questions.The Interactive Tax Assistant covers many common tax topics. Type in a question or search terms and it can lead step-by-step to the answer. Or try the IRS Tax Map. It has a list of tax law subjects to review. It combines tax topics, forms, instructions and publications into one research tool.
- Get Forms and Publications.View, download and print federal tax forms and publications Dozens of IRS publications are available for download in ePub format.
- Use IRS Free File.File a federal tax return for free using IRS Free File. Taxpayers who earned $64,000 or less can prepare and e-file their taxes using free brand name tax software. With e-file, there is no need to prepare or mail any paper forms to the IRS.
- Check on a Refund.The Where’s My Refund? tool is a fast and easy way to check on a tax refund. Use the IRS2Go mobile app to access the tool, or click on the ‘Refunds’ tab on IRS.gov.
- Use IRS Direct Pay.Pay taxes due with IRS Direct Pay. It’s a safe, easy and free way to pay from a checking or savings account. Go to gov/directpay to pay a federal tax bill.
- Apply for an IRS Payment Plan.An IRS Online Payment Agreement can be an option for taxpayers who can’t pay all their taxes at once.
- Check Out a Charity.Only donate to a qualified charity to deduct the donation on a tax return. Use the IRS EO Select Check tool to see if a charity is qualified.
- Calculate Tax Withholding.Taxpayers who got a large refund or owed more taxes than expected may want to change their tax withholding. Use the IRS Withholding Calculator tool to help.
- Get a Transcript. If a taxpayer does not have a copy of their tax return, they may use the Get Transcript self-help tool on IRS.gov to get a tax return transcript. Taxpayers should keep a copy of their tax return.