With tax season in swing here are a few deductions you may have been missing out on. You will have to itemize you return, but you just might get a better return by doing so.
1. MORTGAGE INTEREST DEDUCTION: You can claim this deduction on a Schedule A form and it must be a loan secured by your home. Interest paid on a loan used to buy, build or improve your home (up to $1 million or $500,000 if married and filing separately.) Interest on a second mortgage, home equity, or home equity line of credit taken out to improve your current home or buy a second home does count toward your $1 million. Interest on other loans, such as college for your kids that is secured by your home, can still be deducted up to $100,000 or $50,000 if married and filing separately.
2. PMI & FHA MORTGAGE INSURANCE PREMIUMS: On Schedule A, you can also deduct the cost of private mortgage insurance, but only if the loan was taken out after 2007. PMI is when you did not put 20% down on your mortgage when taking the loan out. This causes the lender to require private mortgage insurance (PMI) on the loan. The premium can only be deducted if your income is less than $100,000 or $50,000 if married and filing separately. If you happen to make more than the allotted $100,000 adjusted gross, the deduction is then reduced by 10% for every $1,000 or $500 if married and filing separately that your income exceeds $100,000 or $50,000 if married and filing separately. If you make more than $110,000, unfortunately, you lose this deduction. The government also insures FHA, VA, and Rural Housing loans. Some of the premiums are paid by the government at closing, so deducting these is complicated. A tax advisor or tax software program is advised.
3. PREPAID INTEREST: Along with your mortgage interest, any prepaid interest paid in the year you took out the mortgage is %100 deductible. Prepaid interest from refinancing for home improvements are also deductible, but prepaid interest from refinancing for a better rate or to use the money on anything other than improving your home should be deducted over the life of the loan.
4.ENERGY TAX CREDITS: If you upgraded a biomass stove, heating, ventilation, air conditioning, insulation, roofs (metal to asphalt), water heaters (non solar), windows, doors, skylights, storm windows, or doors the energy tax credit is a dollar to dollar reduction in your tax liability. Be sure to read the fine print to claim your credit as some improvements are capped lower than others. You can find all this out at http://www.energystar.gov/ and also determine if your new system is eligible.
5. VACATION HOME TAX DEDUCTIONS: Rules for this type of deduction are very complicated. Keeping good records can reduce this a bit. If you own a vacation home and do not rent it out more than 14 days a year, you can deduct the real estate taxes and mortgage interest.
6. PROPERTY TAXES: Any real estate property taxes you pay are also deductible. If you have an escrow account, the amount will be on your annual statement. If you purchased the home in 2012, check your HUD-1 to see if you paid any property taxes when you closed on the home.
Although this article provides general information on tax laws, do not rely on this as legal or tax advice. Consult a professional for such advice.