If you are itemizing to take advantage of your mortgage interest and other homeowner deductions, don’t think you can get away with simply racking your brain to try to come up with as many as you can. It’s really important that you keep track of your actual expenses — and that means receipts, bills and any other paper work that the IRS might want to lay eyes on during an audit.
If you’re itemizing, you should have an organized system for tracking your finances. Consider investing in a scanner so that you have both a digital image and hard copy of your receipts. Having a backup copy is convenient enough, but it’s even better to use a software system (or even a digital filing system of your own devising) to track and store your deductions. It’ll save you a lot of time when tax season rolls around.
4: Moving Expenses
For most people, being a proud homeowner also means that you are at times a home seller and buyer as well. And while we already discussed some nice tax write-offs you can take if you’re selling your home, you shouldn’t consider the cost of moving to a new house a total loss. If you’re relocating for a new job, you can write off quite a bit of your travel expenses for the trip.
Now, let’s be clear: You can only deduct moving expenses if it’s for a new job, and you have to meet some specific requirements. (In short, your new job has to be a certain distance from your old and new house, and you also have to work full-time for at least 39 weeks during the year after you move.) If you do meet the requirements, you can take a whole host of deductions: the cost of traveling to the new location, the cost of a storage unit (for up to 30 days), even the cost of lodging along the way. Even better, the deduction doesn’t just apply to the new employee; it applies to all members of your household. And having Rover around will finally prove useful — you can even deduct the cost of moving the family pets.
3: Buy a Second Home
It may seem positively crazy to save taxes by buying a whole new home. And don’t be mistaken; for most, it’s not a reasonable way to “save” money. But here’s the thing: All the tax breaks that we’ve talked about that apply to your first home? They apply to a second one too. That means you get to write off mortgage interest (up to $1.1 million), property taxes and all the rest. The only catch is that you can only do that if you’re not renting out the home.
If you’re renting it out only a few days a year? You’re in real luck. You can pocket any rental income — tax-free — if it’s rented out less than 14 days a year, along with the other deductions. If you rent it out for more than 14 days, you’re going to have to report all your rental income. But if you’re still using it at the time for personal use, you can use write-off deductions based on the percentage you spend personally using it. So, if you rent out the house a couple months a year, use it a month a year and keep it empty for the remainder, you can’t include the cost of the rental time in your allocations. Everything else? Fair game.
2: Home Office
The home office deduction tempts every homeowner who files taxes. It seems easy enough: Just claim the den as a home office, write off those Internet bills and the cost of that new office chair and relax knowing that your home is finally working for you. But of course, you won’t do that, because taking the home office deduction is a red flag for audits, you don’t apply and the deduction is absurdly hard to figure out. Time to go to the den and brood.
Not so fast. The IRS has actually made it much easier to claim a home office deduction, and there’s no reason to believe that taking it triggers an audit. You do have to make certain you fit the criteria, but many homeowners who run a small business or have a dedicated office space in their home should take advantage of it. The biggest rule is that you need to use your home office space exclusively and regularly for business. (That means you can’t claim the family room where everybody hangs out, and you can’t claim an empty room because you’ve taken a few business calls there.)
If you do meet the conditions of exclusive and regular use, the IRS offers a new, simplified method of deduction. Instead of trying to figure out the percentage of utilities and other expenses you use for business, you can simply multiply the square footage of your business space (up to 300 feet [91 meters]) by $5 to reach a dollar deduction amount.
1: RV or Boat Loans Count as Mortgage
This tip is number one not because it’s necessarily the most useful, but because it’s absolutely amazing. As we said very early on, deducting your mortgage interest might be the best way to get a nice big itemized deduction. For most of us, that means pretty much one thing: We can take that one mortgage loan and make it work tax magic.
But here’s the thing: If you’ve gotten a loan for a recreation vehicle or boat that includes sanitation, cooking and sleeping facilities, you can write off the mortgage interest on that loan too. In other words: If you can live on your RV or boat, you can count it as a second home and take the deduction accordingly.
Here’s the bad news, if you’re just a rich person with houses, boats and RVs to spare: You can’t write them off if you qualify for the alternative minimum tax, which is for those with higher incomes.
To read a lot more about taxes, click below.
Author’s Note: 10 Tax Tips for Homeowners
Not to brag, but I’m totally a homeowner myself. But don’t fawn over my impressive home-owning prowess yet: You should also know that for a long time I had no idea mortgage interest was deductible, and probably have been totally throwing away good deductions for years now because I was too lazy to do anything but take the standard deduction. Lesson to be learned: Do your tax research.
- Bell, Kay. “Home Sweet Homeowner Tax Breaks.” Bankrate. Jan. 29, 2014. (Oct. 8, 2014) http://www.bankrate.com/finance/taxes/home-sweet-homeowner-tax-breaks-1.aspx
- IRS. “Publication 547.” 2013. (Oct. 8, 2014) http://www.irs.gov/publications/p547/ar02.html#en_US_2013_publink1000225200
- Kiplinger. “Deductions for Homeowners.” Jan. 2011. (Oct. 8, 2014) http://www.kiplinger.com/article/real-estate/T010-C000-S001-deductions-for-homeowners.html
- Reeves, Jeff. “Six Important Tax Tips for Homeowners.” USA Today. March 6, 2014. (Oct. 8, 2014) http://www.usatoday.com/story/money/personalfinance/2014/03/02/irs-taxes-deduction-homeowner-mortgage-interest/5863865/
- Reeves, Jeff. “Tax Tips.” USA Today. March 5, 2013. (Oct. 8, 2014) http://www.usatoday.com/story/money/personalfinance/2013/03/05/tax-tips-homeowners-irs-deduction/1964555/
- TurboTax. “About Casualty Deduction for Federal Income Tax.” Intuit. 2013. (Oct. 8, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Deductions-and-Credits/About-Casualty-Deduction-for-Federal-Income-Tax/INF14772.html
- TurboTax. “Buying a Second Home – Tax Tips for Homeowners.” Intuit. 2013. (Oct. 8, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Home-Ownership/Buying-a-Second-Home/INF12015.html
- TurboTax. “How Short Sales and Foreclosures Affect Your Taxes.” Intuit. 2013. (Oct. 8, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Home-Ownership/How-Short-Sales-and-Foreclosures-Affect-Your-Taxes/INF19990.html
- TurboTax. “IRS Moving Expense Deductions.” Intuit. 2013. (Oct. 8, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/General-Tax-Tips/IRS-Moving-Expense-Deductions/INF14389.html
- TurboTax. “Tax Aspects of Home Ownership: Selling a Home.” Intuit. 2013. (Oct. 8, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Home-Ownership/Tax-Aspects-of-Home-Ownership–Selling-a-Home/INF12035.html
- TurboTax. “The Home Office Deduction.” Intuit. 2013. (Oct. 8, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Small-Business-Taxes/The-Home-Office-Deduction/INF12067.html
- TurboTax. “Top 5 Myths About Tax Audits.” Intuit. 2013. (Oct. 8, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/General-Tax-Tips/Top-5-Myths-About-Tax-Audits/INF18178.html