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Real Estate Taxes

posted on 2 APR 2007

Tax Time: Which Real Estate-Related Deductions Are You Entitled To?

By Charles J. Kovaleski
Just like last year, taxpayers get an extra couple of days to file their returns this year: April 15 falls on a Sunday, but since April 16 is a holiday (Emancipation Day, which is observed in Washington, D.C.), the IRS has pushed the deadline to Tuesday, April 17, for the entire country.

At tax time, most homeowners are keenly aware of the big daddy of tax deductions: The interest accrued on monthly mortgage payments, which can amount to thousands of dollars. If you decided to pay your mortgage off early in 2006, as many did, you can also deduct the prepayment penalty fees from your taxes.

Other deductions available to homeowners are less well known. If you use an accountant, he or she will be well-versed on the deductions for which you qualify, as will your real estate attorney, so be sure to consult with either before April 17.

But if you’re like millions of Americans who file their own taxes, take special note of the following real estate deductions (many of which are overlooked each April:
Fees or “points” paid to obtain a mortgage on your principal residence.

Did you buy a home in 2006 and pay the mortgage lender a loan fee, or “points?” Be sure to include this itemized interest deduction on Schedule A. Each point represents 1 percent of the amount borrowed, so if you paid two points, or $2,000 on your home mortgage loan, deduct it.
Uninsured casualty loss or damage deduction. If your home sustained damage because of a tornado, a hurricane or theft and you were not compensated by insurance, you may be able to get a deduction on your taxes. To qualify for this deduction, the total amount of the un-reimbursed damage must be more than 10 percent of your adjusted gross income—less $100 from the un-reimbursed damage.

Fees or points paid when you refinanced. Unlike those fees paid on your mortgage, this deduction is valid over the life of the mortgage, rather than in the year you refinanced.

Capital gains on the sale of a home. Single homeowners can take advantage of a tax-exempt profit of up to $250,000 when they sell their home, as long as the home was the seller’s primary residence for two of the last five years. Married homeowners filing joint tax returns get a break on capital gains taxes on up to $500,000 of the profits from the sale of their home. If you sold rental or investment property last year—or plan to sell this year—and want to avoid capital gains tax, discuss tax-deferred exchanges with your real estate attorney before selling. Known as a Section 1031 Exchange, the rule requires sellers to trade equally or up in both price and equity for qualifying “like kind” properties within a certain time limit.

Moving costs. If you moved due to a job change last year, your moving costs may be deductible whether you are a renter or an owner. The distance from your old home to your new job must be at least 50 miles farther than the distance from your old home to your old job to qualify. You also must be employed at least 39 weeks during the next 52 weeks in the vicinity of your new job location.

Pro-rated mortgage interest on assumable loans. You can deduct your share of pro-rated monthly mortgage interest if you bought a home and took over its existing mortgage payments from the prior owner.

Private mortgage insurance. Legislation passed earlier this year allows some homebuyers to deduct the cost of private mortgage insurance—for those buying homes this year only. That means, the deduction is only available for 12 months for the 2007 tax year, so be sure to make a mental note for next year’s taxes.

Finally, if you work full or part time from your home, you are also entitled to significant tax deductions for part of your household expenses.

The square footage of your work space determines your deductions. If you own a 1,500-square-foot house, for instance, and your business area is 500 square feet you can deduct 33 percent of your household costs, including homeowners insurance, utilities, repairs, mortgage interest and property taxes.

Additional home-business costs are fully deductible, including business phone expenses and the cost of renovating or painting the business area. Business insurance premiums are also fully tax-deductible.

Check with your tax accountant or real estate attorney if you have any questions about deductions relating to your home.

is president of Attorneys’ Title Insurance Fund, Inc. (The Fund), the leading title insurer in Florida and the sixth largest title insurance company in the country. Acknowledged as the Florida residential real estate expert, The Fund has been in business for more than 50 years and supports a network of more than 6,000 attorney agents statewide who practice real estate law. The Fund, based in Orlando, underwrites more than 300,000 title insurance policies for owners and lenders in Florida every year. For more information, visit www.fundhomeinfo.com.
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New Law Allows Deduction for Mortgage Insurance Premiums

(ARA) - Home buyers have something new this spring to factor into their home financing calculations: A new federal tax deduction allows many qualified families to write-off premiums for private and government mortgage insurance on loans that close in 2007.

This is the first time that homeowners who have low down payment loans with mortgage insurance will be able to deduct the cost of their mortgage insurance premiums, and the average annual tax savings for qualified families will be between $300 and $350. The new deduction is effective for the 2007 tax year.

Under the new law, private mortgage insurance (PrivateMI) premiums are now fully tax deductible for borrowers who buy or refinance a home this year if their adjusted gross income is $100,000 or less. Families with incomes of more than $100,000 and up to $109,000 will be eligible for a reduced deduction.

"Making the cost of mortgage insurance tax deductible helps those who need it most: low- and moderate-income Americans, primarily first-time home buyers, who are financially responsible but simply don't have the means to amass a 20 percent down payment," says Steve Smith, chief executive officer of The PMI Group, Inc. and President of Mortgage Insurance Companies of America (MICA).          

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