Tax Tips for Homeowners Looking Ahead to 2010 Returns
By: Mike DeSenne
Published: February 22, 2010
From energy tax credits to vacation home deductions, check out these tax tips for homeowners looking ahead to 2010 returns.
Claim remaining energy tax credits
It's time to get cracking if you didn't exhaust your full allotment of residential energy tax credits
during 2009. Although tax credits for big projects like residential
wind turbines and solar energy systems have no upper limit and are good
through 2016, energy tax credits capped at $1,500 expire at the end of
2010. Eligible capped projects include new windows and doors,
insulation, roofing, water heaters, HVAC, and biomass stoves.
Here's how it works with capped federal credits: You can earn energy tax credits worth 30% of the cost of qualifying improvements,
but the total tax credits can't exceed $1,500 combined for 2009 and
2010. So if you only took, say, $700 worth of capped energy credits on
your 2009 tax return, you're still due for another $800 in credits in
2010. Some projects include the cost of installation--a furnace, for
example--while others, such as insulation, are limited to the cost of
materials.
Max out tax benefits of a vacation home
Use a vacation home wisely, and it'll provide a break from taxes as
well as the hustle and bustle of everyday life. The rules on tax deductions for vacation homes can get a bit tricky, but understanding and adhering to them can yield many happy tax returns.
If
your vacation home is truly a vacation home meant for your personal
enjoyment, as opposed to a rental-only income property, you can usually
deduct mortgage interest and real estate taxes, just as you would on
your main home. You can even rent out the home for up to 14 days during
the year without getting taxed on the rental income. Not bad.
Now,
let's say you want to rent out your vacation home for more than 14 days
in 2010, but also use it yourself from time to time. To maximize the
tax benefits, you need to keep tabs on how many days you use your
vacation home. By restricting your annual personal use to fewer than 15
days (or 10% of total rental days, whichever is greater), you can treat
your vacation home as a rental-only income property for tax purposes.
Why
is that a big deal? In addition to mortgage interest and real estate
taxes, rental-only income properties are eligible for a slew of other
tax deductions for everything from utilities and condo fees to
housecleaning and repairs. Deductions are limited once personal use
exceeds 14 days (or 10% of total rental days), so get out your calendar
now to strategically plot your vacations.
Take advantage of tax breaks for the military
In salute to members of the armed forces serving overseas who want to purchase a home, the IRS is extending a lucrative tax perk for military personnel.
If you spent at least 90 days abroad performing qualified duty between
Jan. 1, 2009, and April 30, 2010, you have an extra year to earn a
homebuyer tax credit. In addition to uniformed service members, workers
in the Foreign Service and in the intelligence community are eligible.
Thanks to this extension of the homebuyer tax credit,
qualifying military personnel have until April 30, 2011, to sign a
contract on a new home. The deal must close before July 1, 2011. Just
like non-military buyers, first-time homebuyers can earn a tax credit
worth up to $8,000, and longtime homeowners can earn a credit of up to
$6,500. The same income restrictions and $800,000 cap on home prices
apply.
Military personnel can also get a break if official duty
calls and they're forced to move for an extended period. Normally, the
homebuyer tax credit needs to be repaid if you sell your home within
three years, but this requirement is waived for uniformed service
members, Foreign Service workers, and intelligence community personnel.
The new extended duty posting doesn't need to be overseas, but it must
be at least 50 miles from your principal residence.
Challenge your real estate assessment
You can't do much about the rate at which your home is taxed, but you
can try to do something about how your home is valued for taxation
purposes in 2010. The process varies depending where you live, but in
general local governments conduct a periodic real estate assessment to
determine how much your home is worth. That real estate assessment
figure is used to calculate your property tax bill.
You can usually appeal your real estate assessment
if you think it's too high. Contact your local assessor's office to
find out the procedure, and be prepared to do some research. There's
often no charge to request a review of your assessment.
Look for
errors. You probably received an assessment letter in the mail, and many
local governments provide the information online as well. Make sure the
number of bedrooms and bathrooms is accurate, and the lot size is
correct. Also check the assessed value of comparable homes in your area.
If they're being assessed for less than your home, you might have a
case for relief.
Even if your assessment is accurate and
comparable homes are being taxed at the same rate, there might be
another route to tax savings. Ask your assessor's office about available
property tax exemptions. Local governments often give breaks to seniors, veterans, and the disabled, among others.
This
article provides general information about tax laws and consequences,
but is not intended to be relied upon by readers as tax or legal advice
applicable to particular transactions or circumstances. Consult a tax
professional for such advice; tax laws may vary by jurisdiction.
Mike
DeSenne is Online Managing Editor for taxes, finances, and insurance at
HouseLogic.com, and the former Executive Editor of SmartMoney.com. He
likes to do his taxes by hand, much to the dismay of his accountant.
Len Lochrie
