Tax Deduction for Tax Year 2013
is the Tax return season, while preparing for your 2013 tax return,
remember as a homeowner or real estate investor you are entitled to
many deductions. Below is the list of some common and major items
that you could deduct.
you own a house or recently purchased a house in year 2013, you
can deduct certain expenses in your 2013 Tax return. Examples are:
- Property tax deduction
- Mortgage interest deduction
- PMI (Private Mortgage Insurance) or FHA MIP (Mortgage Insurance Private)
- Prepaid interest deduction
- Energy tax credits
- Vacation or second home tax deductions
- Home buyer tax credit repayment
Capital Gains Exemptions on the Sale of principal residences
This article provides general information about tax laws and
consequences, but shouldn’t be relied upon as tax or legal advice
applicable to particular transactions or circumstances. Consult a tax
professional for such advice; tax laws may vary by jurisdiction.
Note: In regards to the Tax
U.S. senators are reforming the tax code
... and everything is on the table, including the mortgage interest deduction,
capital-gains exemptions on the sale of principle residences,
those bullet list shown above and
Let Your Senators know that
any tax reform should
retain real estate tax incentives
Property tax deduction
deduct on Schedule A the real estate property taxes you pay. If you
have a mortgage with an escrow account, the amount of real estate
property taxes you paid shows up on your annual escrow statement.
bought a house this year, check your HUD-1 Settlement statement to
see if you paid any property taxes when you closed the purchase of
your house. Those taxes are deductible on Schedule A, too.
Mortgage interest deduction
the neatest deductions itemizing home owners can take advantage of is
the mortgage interest deduction, which you claim on Schedule A. To get
the mortgage interest deduction, your mortgage must be secured by your
home — and your home can even be a house trailer or boat, as long as you
can sleep in it, cook in it, and it has a toilet.
Interest you pay on a mortgage of up to $1 million — or $500,000 if
you’re single or married filing separately — is deductible when you use
the loan to buy, build, or improve your home.
take on another mortgage (including a second mortgage, home equity loan,
or home equity line of credit) to improve your home or to buy or build a
second home, that counts towards the $1 million limit.
use loans secured by your home for other things — like sending your kid
to college — you can still deduct the interest on loans up $100,000
($50,000 for singles or married filing separately) because your home
secures the loan.
PMI and FHA MIP (mortgage insurance premiums) Deduction
Helpfully, the government extended the mortgage insurance premium
deduction through 2013. You can deduct the cost of private mortgage
insurance as mortgage interest on Schedule A — meaning you must itemize
your return. The change only applies to loans taken out in 2007 or
PMI? If you have a mortgage but didn’t put down a fairly good-sized down
payment (usually 20%), the lender requires the mortgage be insured. The
premium on that insurance can be deducted, so long as your income is
less than $100,000 (or $50,000 for married filing separately).
adjusted gross income is more than $100,000, your deduction is reduced
by 10% for each $1,000 ($500 in the case of a married individual filing
a separate return) that your adjusted gross income exceeds $100,000
($50,000 in the case of a married individual filing a separate return).
So, if you make $110,000 or more, you lose 100% of this deduction (10% x
10 = 100%).
private mortgage insurance, there's government insurance from FHA, VA,
and the Rural Housing Service. Some of those premiums are paid at
closing and deducting them is complicated. A tax adviser or tax software
program can help you calculate this deduction. Also, the rules vary
between the agencies.
Prepaid interest deduction
interest (or points) you paid when you took out your mortgage is 100%
deductible in the year you paid them along with other mortgage
If you refinance your mortgage and use that money for home improvements,
any points you pay are also deductible in the same year.
But if you refinance to get a better rate and term or to use the money
for something other than home improvements, such as college tuition,
you’ll need to deduct the points over the term of the loan. Say you refi
for a 10-year term and pay $3,000 in points. You can deduct $300 per
year for 10 years.
So what happens if you refi again down the road?
Example: Three years after your first refi, you refinance again. Using
the $3,000 in points scenario above, you’ll have deducted $900 ($300 x 3
years) so far. That leaves $2,400, which you can deduct in full the year
you complete your second refi. If you paid points for the new loan, the
process starts again; you can deduct the points over the term of the
Home mortgage interest and points are reported on IRS Form 1098. You
enter the combined amount on line 10 of Schedule A. If your 1098 form
doesn’t indicate the points you paid, you should be able to confirm the
amount by consulting your HUD-1 settlement sheet. Then you record that
amount on line 12 of Schedule A.
Energy tax credits
The energy tax credit of up to a lifetime $500 had expired in 2011. But
the Feds extended it for 2012 and 2013. If you upgraded one of the
following systems this year, it’s an opportunity for a dollar-for-dollar
reduction in your tax liability: If you get the $500 credit, you pay
$500 less in taxes.
ventilation, air conditioning
(metal and asphalt)
doors, and skylights
windows and doors
the eligible products and systems are capped even lower than $500. New
windows are capped at $200 — and not per window, but overall. Read about
the fine print in order to claim your energy tax credit.
if the system is eligible. Go to Energy Star’s website for detailed
descriptions of what’s covered. And talk to your vendor.
product or system must have been installed, not just contracted for, in
the tax year you'll be claiming it.
system receipts and manufacturer certifications. You’ll need them if the
IRS asks for proof.
Form 5695 with the rest of your tax forms.
Vacation home tax deductions
rules on tax deductions for vacation homes are complicated. Do yourself
a favor and keep good records about how and when you use your vacation
the only one using your vacation home (you don’t rent it out for more
than 14 days a year), you can deduct mortgage interest and real estate
taxes on Schedule A.
vacation home out for more than 14 days and use it yourself fewer than
15 days (or 10% of total rental days, whichever is greater), and it’s
treated like a rental property. Those expenses get deducted
using Schedule E.
home for part of the year and use it yourself for more than 14 days and
you have to keep track of income, expenses, and divide them
proportionate to how often you used and how often you rented the house.
Home buyer tax credit
were federal first-time home buyer tax credits in 2008, 2009, and 2010.
claimed the home buyer tax credit for a purchase made after April 8,
2008, and before Jan. 1, 2009, you must repay 1/15th of the credit over
15 years, with no interest.
used the tax credit in 2009 or 2010 and then sold your house or stopped
using it as your primary residence, within 36 months of the purchase
date, you also have to pay back the credit. Example: If you bought a
home in 2010 and sold in 2012, you pay it back with your 2012 taxes.
repayment rules are less rigorous for uniformed service members, Foreign
Service workers, and intelligence community workers who get sent on
extended duty at least 50 miles from their principal residence.
of the armed forces who served overseas got an extra year to use
the first-time home buyer tax credit. If you were abroad for at least 90
days between Jan. 1, 2009, and April 30, 2010, and you bought your home
by April 30, 2011, and closed the deal by June 30, 2011, you can claim
your first-time home buyer tax credit.
has a tool you can use to help figure out what you owe.
Source: Derived from NAR's REALTOR® Free Content Resource