This post was contributed by a community member. The views expressed here are the author's own.

Politics & Government

Agent: 2011 Tax Info for Homeowners

Joan Probala reminds us that with the New Year comes tax season; itemize your return to take advantage of deductions for homeowners.

The beginning of the year is always the time to reflect on the past and set expectations for the New Year. Unfortunately, it is also time to start getting ready for filing your income tax.

Since the Super Committee failed to come to consensus on how to reduce the national debt, home owners can still look forward to deducting their mortgage interest on their tax returns. There are, however, some rules that must be followed to ensure that homeowners utilize all the allowable deduction and avoid an IRS inquiry. You will have to itemize your return to reap these benefits:

  • Couples filing jointly can deduct the interest on properties with combined home loans up to $1 million, married and filing separately can claim interest on up to $500,000, as long as the money was used for acquisition costs—that is the cost to buy, build, or substantially improve a home 
  • If your monthly mortgage payment includes money for a tax escrow from which your lender pays the real estate taxes, you may actually be paying more tax than what is due. The lender will carry over extra funds to pay the next year’s taxes. You cannot deduct the full amount, only the actual taxes that your lender paid. Use the amount on the 1098 Form that the lender provides.
  • If you purchased a home in the middle of 2011, you cannot deduct all the taxes for the full year. Only the portion that is included in the HUD-1 statement can be deducted.
  • Many homeowners have been able to refinance in 2011. You can deduct the points paid on the refinance, but the deduction is spread out on the life of the loan. If you refinance for a third time, the entire amount of points paid on the first refinance can be deducted.
  • If you take out a home equity loan or HELOC for $150,000 that you don’t use to buy, build or improve your home, you can deduct the interest you pay on only the first $100,000 ($50,000 if married filing separately). If the entire amount of is used to improve the home, the entire amount of interest is deductible.

Asking a CPA for help in deciphering your taxes is always helpful. Tina Ellis, a CPA in Issaquah, added her thoughts on what a homeowner should do to receive full credit for possible deductions. 

Find out what's happening in Gig Harborwith free, real-time updates from Patch.

“We all know about the common itemized deductions for home ownership:  mortgage interest on our principle and second homes and real estate taxes.  Many people forget about deducting the points paid on a loan,” Ellis said.

"Points paid to reduce the interest rate, however, are not deductible. This deduction is taken as an interest deduction on Schedule A. 

Find out what's happening in Gig Harborwith free, real-time updates from Patch.

"If you did not itemize your deductions in the year of purchase or in a year of refinance and later itemize, treat the points as amortized over the life of the loan (some of the point deduction will be lost) and add the current year portion to your itemized deductions," Ellis said.

"Sales taxes paid for home improvements (materials and labor sales tax paid to increase the value or life of your home) are deductible in addition to the sales tax calculated on IRS charts. The sales tax deduction expired on December 31, 2011. Hopefully this will be renewed.”

These are just a few of the deductions and regulations for those deductions. For additional information consult the Home Mortgage Interest Deduction for preparing 2011 returns chart provided by the federal government.

As always, it is beneficial to consult a tax attorney or CPA for advice in filing you tax returns.

We’ve removed the ability to reply as we work to make improvements. Learn more here

The views expressed in this post are the author's own. Want to post on Patch?

More from Gig Harbor