With just three weeks left until 2014 and the holidays upon us, it’s a busy time of year. But there are a few things last-minute things homeowners should be sure to squeeze in to maximize their homeowner tax benefits for 2013.
FORBES spoke with two CPA tax experts, Michael M. Eisenberg, a CPA financial advisor at Eisenberg Financial Advisors in Los Angeles, and Jordan Amin, of EisnerAmper LLP in Iselin, New Jersey, who gave us the following tips:
1. Pre–pay your property taxes
In California, where property taxes are due twice a year, it may make sense to pre-pay next year’s first installment. This is especially the case for people who expect their income to go down next year. “Check with your CPA about what the rules are in your state,” Eisenberg advises.
2. Accelerate mortgage payments
For similar reasons, people expecting their incomes to go up may want to push their January mortgage payment into December. “If you’re going to make that payment in the next 30 to 90 days anyway, it’s almost silly not to accelerate and get the deduction,” says Amin. “Especially if your income is going to change.”
3. Make energy efficiency improvements
The IRS tax credit for making improvements to a home for energy efficiency–insulation, air conditioning or heating units, windows, among other items–they can qualify for a tax credit of 10% of the cost, up to a lifetime maximum of $500. Note that this is not a deduction, but a credit–a straight subtraction from taxes owed. “This thing may be expiring at the end of the year,” Eisenberg says. So do those energy efficiency projects now.
4. Finalize your foreclosure sale
Before the financial crisis, people who lost their homes to foreclosure and had the remainder of the balance on their mortgages forgiven had to report that cancelled debt as income and pay taxes on it. But in the midst of the recession, with people losing houses left and right, Congress had a heart and stopped taxing the first $2 million in forgiveness of mortgage debt. Well, that nice perk is coming to an end at the end of the month. So if you have a home in the midst of a short sale or foreclosure proceeding, put the pressure on everyone involved to get the deal done before the year is over.
“This is so important that people know,” Eisenberg says. “If they have $500,000 or $600,000 or $700,000 in debt cancelled,” on a sale that closes after the end of a year, “then not only have they lost their house, they’re also going to end up paying taxes on the debt forgiveness as income. Not a good outcome.”
In addition to the above steps you might want to take before the year is over, here are some items that you can’t do anything to change, but would be wise to keep in mind for 2013 taxes:
1. Deductibility of points
For new loans on home purchases for this year, points are deductible. This is true for any acquisition. However, for points on a refinance loan for anything other than improvements on the home, the points are deductible over the life of the loan. On 2013 sales of homes with a refinanced loan that has points, the unused portion of the points are deductible for this year’s taxes.
2. Deductibility of PMI ending
The tax deduction for principal mortgage insurance (PMI) is set to expire at the end of this month, but Eisenberg does not recommend pre-paying, as the IRS may not look fondly on that.
3. Exclusions on gains from sales
Home sales in 2013 qualify for an exclusion on the net sales gain (the selling price minus the purchase price plus any improvements) of up to $250,000 for an individual, $500,000 for a couple. The caveat: this only applies to a home that was used as a personal residence for two out of five years. If you’ve moved out of a personal residence and then moved back in, you have to live in it for five years before you can take this exclusion. Consult a tax accountant to see if you qualify for a partial exclusion.
4. Home office deduction
Both homeowners and renters can take advantage of a simplified rule for the home office deduction. Under new rules for 2013, the formula is a $3 per square foot deduction, up to 500 square feet. The office has to be used consistently and regularly, though.
5. Clean out and give away
Another thing that homeowners-—or anyone—-can do is go through their homes and get rid of extra possessions by making donations to charity. Taxpayers who itemize can include charitable deductions in their 2013 taxes. “Just make sure you’re donating it to an IRS-designated 501c3 organization,” Amin says.
Call you tax consultant or CPA for legal advice on these matters. If you don’t have one please contact me and I will be happy to give you a referral! Enjoy Your Holidays!
JOBS, JOBS, JOBS
The unemployment rate report (a market mover) is in this morning and was lower than expected. However, not so much lower to power the Fed into making any tapering changes to the bond program at the end of December meeting according to my experts. The forecast is for the bond purchase tapering talk to take place at the March Fed meeting after Janet Yelson is Fed President.
What all this means is that stocks are up and mortgage rates shouldn’t go up in the short term. That’s the good news,
“Monthly prices fell slightly in October (down 0.25 percent month-over-month), but remained resilient against the usual seasonal patterns of stabilizing inventory,” realtor.com noted in its report.
Detroit has seen the largest year-over-year increase, with median asking prices rising 44 percent in the past year. Eighty-five percent of the 146 markets that realtor.com tracks reported year-over-year increases. The following metros recorded the highest list price increases in the past year (October 2012 compared to October 2013):
- Detroit: +44.33%
- Median list price: $129,900
- Stockton-Lodi, Calif.: +40.80%
- Median list price: $245,000
- Santa Barbara-Santa Maria-Lompoc, Calif.: +33.39%
- Median list price: $799,000
- Reno, Nev.: +29.29%
- Median list price: $258,577
- Melbourne-Titusville-Palm Bay, Fla.: +27.78%
- Median list price: $165,990
- Fresno, Calif.: +24.34%
- Median list price: $229,900
- Las Vegas, Nev.-Ariz.: +24.33%
- Median list price: $164,999
- Oakland, Calif.: +24.27%
- Median list price: $475,000
- Phoenix-Mesa, Ariz.: +22%
- Median list price: $237,900
- San Diego: +21.92%
- Median list price: $449,900
Only 19 markets posted price declines, led by Akron, Ohio, which posted a 7.93 percent year-over-year loss, and South Bend, Ind., with a 7.79 percent decrease in median asking prices.
—REALTOR® Magazine Daily News
How Many Homes in the Country Are Still Underwater?
November 30, 2013
With the help of centrally-planned interest rates and low inventory levels, home prices have been on the rise. In September, home prices across the nation increased on a year-over-year basis for the 19th consecutive month. According to CoreLogic, a property information and analytics provider, home prices jumped 12 percent in September from a year earlier. In fact, home prices have posted double-digit gains for eight straight months.
Home prices are still 17.4 percent below their bubble peak in April 2006, but every state logged an annual increase in September. West Virginia and Arkansas posted the smallest gains at 0.9 percent and 1.3 percent, respectively. Looking ahead, Zillow predicts the negative equity rate among all homeowners with a mortgage will decline to 18.8 percent by the third quarter of 2014.