Remember These Real Estate Tax Deductions for 2012

Cutting taxesBy Troy Corman,

As we approach the April 15th tax deadline for 2012 federal income taxes, don’t forget to take advantage of these notable real estate tax deductions.

1. Mortgage interest deduction – it’s estimated that almost 50% of those eligible fail to file this deduction on their tax return. The sum of the mortgage interest you pay on your home throughout the year is tax-deductible. This deduction is available for multiple mortgages on interest payments up to $1 million. To qualify for the interest payment tax deduction, the mortgage must be used to purchase, build or improve a home.

2. Speaking of home improvements, they can be deducted from Uncle Sam’s tax bill, but only when you sell your home. So be sure to keep receipts for labor and materials regarding any improvements or remodeling efforts to reduce your taxable profits.

3. Enjoy tax-free profits when you sell a personal residence that you have lived in for at least two of the last five years. Created by the 1997 Tax Act, this allows a single person tax-free profits on the first $250,000 gain, while couples enjoy tax-free status on the first $500,000. It’s only good on primary residences. You can take advantage of this deduction once every two years.

4. Pay just the 15% capital gains rate if you sold investment real estate in 2012 that you had owned at least one year. This rate doesn’t apply to “dealers”, like home builders or frequent home flippers, who have to pay ordinary income tax rates.

5. Property taxes are fully deductible.

6. Property insurance is deductible for investment or rental real estate, but is not deductible for personal residences.

7. Points that you paid to reduce your interest rate are also deductible on both home purchases and home refinances. On a home purchase, the dollar amount you paid in points is fully deductible on that year’s tax filing. On a home refinance, the points are deductible proportionally over the life of the loan. So, if you refinanced into a 15-year loan, you could deduct only 1/15th of the total dollar amount you paid in points – but you can do it each year for the life of the loan. 

8. Home offices can be deducted if you work from home, but you can only deduct the square footage of the actual office space exclusively used for business. So if your office space size makes up 10% of your home’s size, multiply your  home’s utilities and upkeep by 10%.

9.  Moving expenses can be deducted in some cases for homeowners who had to relocate for work. The new job must be at least 50 miles farther from the old home than the newly purchased home. Moving expenses eligible for deduction include transportation of household goods, vehicles and people.

10. Health-related improvements are fully deductible as long as they don’t add value to the home. The medical improvements must be made for a chronically ill or disabled person to qualify.