The Taxes IssueJust like clockwork, tax time hits us right after some of the most enjoyable times of the year where we spend time with family and friends, perhaps enjoy a few days off work, and just relax. Then reality hits: Resolutions must be made! You need to eat better, exercise more, and (gasp!) get control of your finances. Now. In the new year.
Relax. If you own a house, your home is helping you out big time financially at tax time. You may not realize this, but it’s true. Homeownership is made affordable for many families because of how Uncle Sam’s tax deductions result in the federal government contributing from 10% to 39.6% (depending on your tax bracket) toward monthly home mortgage interest and property tax payments.
In this edition, we have outlined some basic home-related tax facts you should be aware of to make the most of available tax savings. Be sure to consult a tax professional for complete information applicable to your specific situation.
Work it Out.
Is your home office deductible?
If you keep records, schedule appointments and carry other such activities from your home office, some common home-office expenses, such as utilities, insurance, repairs, cleaning and depreciation, may qualify for a deduction, even if you do the actual work in another location. Be aware, however, any depreciation claimed after May 6, 1997, will be taxed at 25% if the residence is sold for a gain, whether or not the property has been converted to personal use.
Starting in 2013, there is a simplified home office deduction calculation to bypass maintaining detailed expense records. Simply deduct $5 for every square foot of home office space used, up to a maximum of 300 square feet or $1,500. This simplified expense is recorded on Schedule C rather than Form 8829 which allows you to separately deduct mortgage interest and real estate taxes on Schedule A.
SMART TIP: If you (or your family) use your home office for non-business purposes, it cannot be claimed on your tax return. To claim home-office deductions, the space must be used exclusively for business purposes.