Homeowners: 4 tax deductions to maximize your IRS refund

February 17, 2016

It’s tax season again.

While you might not be jumping for joy at the thought of this, let’s at least make sure you’re doing your due diligence and gaining all the benefits you can from tax deductions that apply to you.

And maybe when this is done, you’ll change your mind since that all-important number at the end will finally be a glowing green, positive number.

The mortgage interest deduction might be one of the first ones to mind, but it’s definitely not the only one.

With the help of Annie Fairchild at AFairchild PC, a CPA firm in the DFW metroplex, HousingWire complied a list of four tax deductions to maximize your IRS refund.

1. Residential energy credits

There is a Residential Energy Credit for certain “Qualifying Property” used in a home/residence.  For 2015 and 2016, the credit is equal to 30% of the cost of the property.

How to qualify:

Qualifying solar heating property is any property used to heat water for use in a dwelling unit that receives at least half of its energy from the sun (note that none of the cost allocated to heat a swimming pool or hot tub may be considered a qualified expenditure).

Qualifying solar electric property is any property that generates electricity from solar energy to be used in a dwelling unit.

Qualified fuel cell property is any fuel cell property with a nameplate capacity of least 0.5 kilowatt hours of electricity generated by using an electrochemical process with an electricity-generating efficiency greater than 30 percent. (NOTE:  maximum amount of credit for the installation of qualified fuel cell property for any tax year is $500 per half kilowatt hour).

Qualified small wind energy property is any wind turbine that generates electricity for use in the residence of the taxpayer. It does not include any wind facility for which a credit can be claimed for electricity produced from renewable resources.

Qualified geothermal heat pump property is any property that uses the ground or ground water as a thermal source to heat a dwelling unit.

2. Mortgage interest, mortgage insurance premiums and deductible points

Mortgage interest: Mortgage Interest is fully deductible up to $1,000,000 of indebtedness.

Mortgage insurance premiums: Premiums paid for qualified mortgage insurance in connection with the purchase of your homestead is deductible.  The amount is fully deductible if the Taxpayer’s Adjusted Gross Income is less than $100,000.  If the AGI is above that amount, the deduction is reduced.

Deductible points: Points on a home mortgage loan for the purchase or improvement of a primary residence are deductible in the year paid.

Charitable donations: Many times when people move, they get all excited and get rid of all of their old furniture, appliances, etc so they can get new for the new house.  The items you donate to charity are deductible.  Make sure to keep a receipt and estimate the value of the items you donate.

3. Moving Expenses

Taxpayers may deduct the reasonable expenses of moving themselves and their families if the move is related to starting work in a new location.

Deductible moving expenses are limited to the cost of:

  • Transportation of household goods and personal effects and
  • Travel to the new residence, including lodging but not meals

Where an automobile is used in making the move, a taxpayer may deduct either:

  • The actual out-of-pocket expenses incurred, i.e., gasoline and oil, but not repairs, depreciation, etc.
  • A standard mileage allowance of 23 cents per mile for 2015 (19 cents per mile for 2016) plus parking fees and tolls.

The important fine print:

To deduct moving expenses a taxpayer must meet a distance test, a length-of-employment test, and a commencement-of-work test. The new principal place of work must be at least 50 miles farther from the taxpayer’s old residence than the old residence was from the taxpayer’s old place of work. If there was no old place of work, the new place of work must be at least 50 miles from the old residence.

During the 12-month period immediately following the move, the taxpayer must be employed full time for at least 39 weeks. A self-employed taxpayer must be employed or performing services full time for at least 78 weeks of the 24-month period immediately following the move and at least 39 weeks during the first 12 months. The full-time work requirement is waived, however, due to death, disability, involuntary separation from work other than for willful misconduct, or transfer to another location for the benefit of the employer.

Generally, the move must be in connection with the commencement of work at the new location and the moving expenses must be incurred within one year from the time the taxpayer first reports to the new job or business. If the move is not made within one year, the expenses ordinarily will not be deductible unless it can be shown that circumstances prevented the taxpayer from incurring the expenses within that period.

4. Business use of home

If you have an office in your home, you may be able to deduct home office expenses related to your business. The deduction is calculated by determining the square footage of the office compared to the square footage of the whole house. This percentage then is used to calculate the business percent of mortgage interest, real estate taxes, insurance, HOA dues, repairs and maintenance, utilities, etc.

And lastly, as much as you would like, here is what is not deductible.

Expenses that are not deductible (unless you have a business in the home):

  • Homeowners Insurance
  • HOA Dues
  • Home maintenance and repairs
  • Utilities

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