Don’t Miss These Last-Minute Tax Breaks For Buyers And Sellers

Let’s face it — the last thing you want to worry about after that second glass of eggnog is what you might have to look forward to come tax day … in April. But I promise you, it’s worth paying attention now so that you can save later.

After more than a year of debate, Congress finally approved the tax extenders bill. Right now I’m guessing you’re asking yourself, what’s the tax extenders bill?

Fair question.

The bill extended a collection of more than four dozen tax-related deductions and credits that had expired, giving taxpayers a bit of a break through the end of 2014.

It can be tough to keep up, especially when Congress loves to squeak things in just under the wire. The extenders bill is packed with so many tax breaks targeted to special interests, like the research and development credit, that you may be tempted to think the changes don’t apply to you.

But they do! If you own a home — or are looking to buy a home — your tax picture for 2014 may appear very different than it did earlier in the year. Here are a few of the breaks that could help lower your federal tax bill.

When a mortgage lender writes off all or any part of a forgiven debt, the amount that is forgiven is passed back to the borrower as taxable for federal income tax purposes. The rule applies to all debt, including home mortgages. However, in 2007, in the midst of the housing crisis, Congress pushed through the Mortgage Forgiveness Debt Relief Act, which allowed for an exemption.

Under the rule, qualifying homeowners who have either lost their homes to foreclosure or qualified for some kind of repayment adjustment don’t have to pick up the forgiven debt as income on their tax returns. The rule was intended to be temporary but has been renewed three times, the most recent being this one-year extension through the end of 2014.

Deduction for mortgage insurance premiums

In a tough market, lenders are a bit more cautious. Buyers who financed homes in the last few years found that many lenders required private mortgage insurance (PMI) to protect the lender in the event of a default.

But here’s the rub: Even though the lender required you to purchase PMI as a condition of getting a mortgage, you couldn’t write it off. Unlike the interest paid on your mortgage, mortgage insurance payments are generally not deductible for tax purposes. As a nod to the difficulties some homeowners encountered in 2014, those who qualify and itemize may now claim a tax deduction for the cost of paying PMI for their homes — and even their vacation homes.

Deduction for state and local general sales taxes

A big consideration in buying a new home is tax benefit and cost. The good news is that even though you’re now paying property taxes, you can deduct them (plus interest paid on your mortgage) from your gross income to reduce your overall taxable income.

Another big consideration when choosing a new place to live is not just the additional cost of real estate taxes in your area but state income tax as well. A handful of states (Alaska, Florida, Nevada, South Dakota, Texas, and Washington) have no state income tax, and a number of others have a relatively low state income tax rate.

But there’s one downside to living in a state with no income tax — if there’s no income tax, there’s no deduction. To ease the pain of the lost deduction, Congress gave residents in those states a temporary break: I n 2014, taxpayers may deduct state and local general sales taxes paid rather than state and local income taxes.

Tax credit for residential energy-efficiency improvements

Yes, it’s trendy to go green — but it can be cost effective, too. For 2014, energy-efficient home improvement tax credits of up to $500 are available for the installation of qualified insulation, windows, and doors and roofs, as well as certain water heaters and qualified heating and air-conditioning systems. It might be a bit much to tackle a big project like installing a new roof over the holidays, but now’s definitely the time to invest if you can.

Just don’t get too comfortable with these tax breaks: unless they are extended again, these tax breaks expire on December 31, 2014. That’s in just two weeks. On January 1, 2015, the breaks disappear and tax bills for homeowners could see a hike.

See Original Post Here