Palos Verde Homes Owners Tax Questions Answered

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Palos Verdes homes owners will get some of their tax questions answered from the interview below through the National Association of Realtors and HouseLogic:

Your Top Home Ownership Tax Questions Answered
By: Natasha Padgitt
Published: December 31, 2012

Which tax benefits do home owners miss? Will you get audited if you take the home office deduction? Find out the answers to these questions and more before Tax Day.

There are a lot of home ownership tax benefits — if you don’t forget to take them. To make sure you get your due, HouseLogic asked tax expert Abe Schneier, a senior technical manager with the American Institute of CPAs, for tax-filing tips.

HouseLogic: What’s the most common home-related tax deduction or credit claimed by home owners?

Abe Schneier: The mortgage interest deduction, [which the NATIONAL ASSOCIATION OF REALTORS® estimates amounts to about $3,000 in tax savings for the average itemizing home owner] and [the deduction for] real property taxes.

HL: Which tax provision do home owners often overlook?

AS: You can deduct mortgage insurance premiums [or PMI] if you were required to get PMI as a condition of receiving financing on your home. Some people will overlook that, although it’s typically disclosed on the 1099 that you receive from the bank, along with all the deductible information you need.

HL note: The PMI deduction has been extended through 2013 and is retroactive for 2012.

[Another area of tax-filing confusion is] whether you’ve correctly treated any points you paid if you refinanced. In a new home purchase, the points can be deducted [in the tax year you paid them]. But typically in a refinancing, you have to amortize and deduct any points you paid over the life of the mortgage, and people tend to forget that after a couple of years.

HL: What’s the No. 1 mistake home owners make when filing their taxes?

AS: Because you receive a statement from the bank with details [such as] how much mortgage interest you paid over the year, and how much the bank pays on your behalf in real estate taxes, the number of mistakes has dropped.

But if you’re in a state where you pay the real estate taxes on your own — the bank doesn’t handle it for you — [people] make mistakes because sometimes real estate tax bills include other items besides pure real estate taxes. It could be trash collection fees; it could be snow removal fees that the state or county is assessing on the real estate tax bill. Since the items are included in the same bill, home owners sometimes deduct [those fees] regardless of whether the items are actually taxes.

HL: What’s the single most important piece of advice for people filing their taxes as a first-time home owner?

AS: You have to take a look at your closing statement from when you bought the house. It’s commonly called the HUD-1 form and you receive it at the closing. Occasionally, there are fees such as prepaid taxes or interest at closing that can be deductible.

HL: What tax advice do you have for someone who’s owned their home for 10 or 20 years?

AS: If you’ve been a longtime home owner and you’ve been through refinancings, you have to be careful about how much interest you’ve deducted, especially if you have a home equity loan or equity line. A lot of people who’ve refinanced have sizable equity lines. The maximum outstanding home equity debt that’s deductible is $100,000; the maximum deductible amount of interest paid on mortgage debt is $1 million.

HL: What home improvement-related records should home owners keep?

AS: Absolutely keep your receipts for couple of reasons:

1. You want to make sure — if there are any warranties attached to the work that was done — that you maintain those records and you have something to go back to the person who did the work in case something doesn’t function properly.

2. If you’ve added value to the home — you’ve added a deck, you’ve added a room, you’ve added something new to house — you’ll need to know what the gain is on that capital improvement when you sell the house.

HL note: Tax rules let you add capital improvement expenses to the cost basis of your home, and a higher cost basis lowers the total profit or capital gain you’re required to pay taxes on. Of course, most home owners are exempted from taxes on the first $500,000 in profit for joint filers ($250,000 for single filers). So it doesn’t apply to too many people.

HL: How do I tell the difference between a capital improvement and a repair?

AS: Typically a repair is [done] to allow an item, like a home furnace or air conditioner, to continue. But if you were to replace the heating unit, that’s not a repair.

HL: Does taking any home-related tax benefits, such as the home office deduction, make a taxpayer more likely to be audited?

AS: Only if numbers look out of the ordinary — for instance, if one year you were writing off $20,000 in mortgage interest debt and the next year you’re writing off $100,000 in mortgage interest. Taking the home office deduction in and of itself doesn’t usually generate an audit. However, if you claim nominal income and significantly higher expenses in an effort to create artificial losses, the IRS will see that there’s something else going on there.

HL: Once filing season is over, when should home owners start thinking about next year’s taxes?

AS: Well, hopefully, when you visit your CPA to give information about or pick up [this year’s] tax return, your CPA has spoken with you about your plans for [next year]:

If any major improvements are scheduled
If you’re planning on moving
How to organize any expenditures for fixing up the home before sale
If you’re planning to do any of those things, talk with your CPA so that you’re prepared with documentation and so that the [tax pro] can help minimize your tax situation.

Visit HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Photo courtesy of Arvin Design

Tax Tips For Palos Verdes Homes Owners

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It is tax time and here are some tips to avoid common mistakes regarding your Palos Verdes real estate deductions courtesy of National Association of Realtors:

10 Easy Mistakes Home Owners Make on Their Taxes

By: G. M. Filisko, Published: January 5, 2012

Don’t rouse the IRS or pay more taxes than necessary — know the score on each home tax deduction and credit.

Sin #1: Deducting the wrong year for property taxes

You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind — that is, you’re not billed for 2011 property taxes until 2012. But that’s irrelevant to the feds.

Enter on your federal forms whatever amount you actually paid in 2011, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.

Sin #2: Confusing escrow amount for actual taxes paid

If your lender escrows funds to pay your property taxes, don’t just deduct the amount escrowed, says Bob Meighan, CPA and vice president at TurboTax in San Diego. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. Your lender will adjust the amount every year or so to realign the two.

For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200. Your lender will send you an official statement listing the actual taxes paid. Use that. Don’t just add up 12 months of escrow property tax payments.

Sin #3: Deducting points paid to refinance

Deduct points you paid your lender to secure your mortgage in full for the year you bought your home. However, when you refinance, says Meighan, you must deduct points over the life of your new loan. If you paid $2,000 in points to refinance into a 15-year mortgage, your tax deduction is $133 per year.

Sin #4: Failing to deduct private mortgage insurance

Lenders require home buyers with a down payment of less than 20% to purchase private mortgage insurance (PMI). Avoid the common mistake of forgetting to deduct your PMI payments. However, note the deduction begins to phase out once your adjusted gross income reaches $100,000 and disappears entirely when your AGI surpasses $109,000. Also, unless Congress acts to extend the PMI deduction again, 2011 is the last tax year for which you can take this deduction.

Sin #5: Misjudging the home office tax deduction

This deduction may not be as good as it seems. It’s complicated, often doesn’t amount to much of a deduction, has to be recaptured if you turn a profit when you sell your home, and can pique the IRS’s interest in your return. Hampton’s advice: Claim it only if it’s worth those drawbacks. If so, here’s what to  know about what you can write off.

Sin #6: Missing the first-time home buyer tax credit

While the original home buyer tax credit deadline passed in April 2010 (and isn’t available in 2012), military families and some government workers on assignment outside the U.S. were given an extension until April 30, 2011, to get a home under contract and take advantage of up to $8,000 in tax credits for first-time buyers and $6,500 in credits for repeat buyers.

It applies to any individual (and, if married, the individual’s spouse) who serves on qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.

Sin #7: Failing to track home-related expenses

If the IRS comes a-knockin’, don’t be scrambling to compile your records. Many people forget to track home office and home maintenance and repair expenses, says Meighan. File away documents as you go. For example, save each manufacturer’s certification statement for energy tax credits, insurance company statements for PMI, and lender or government statements to confirm property taxes paid.

Sin #8: Forgetting to keep track of capital gains

If you sold your main home last year, don’t forget to pay capital gains taxes on any profit. However, you can exclude $250,000 (or $500,000 if you’re a married couple) of any profits from taxes. So if you bought a home for $100,000 and sold it for $400,000, your capital gains are $300,000. If you’re single, you owe taxes on $50,000 of gains. However, there are minimum time limits for holding property to take advantage of the exclusions, and other details. Consult IRS Publication 523.

Sin #9: Filing incorrectly for energy tax credits

If you made any eligible improvement, fill out Form 5695. Part I, which covers the 30%/$1,500 credit for such items as insulation and windows, is fairly straightforward. But Part II, which covers the 30%/no-limit items such as geothermal heat pumps, can be incredibly complex and involves crosschecking with half a dozen other IRS forms. Read the instructions carefully.

Sin #10: Claiming too much for the mortgage interest tax deduction

You can deduct mortgage interest only up to $1 million of mortgage debt, says Meighan. If you have $1.2 million in mortgage debt, for example, deduct only the mortgage interest attributable to the first $1 million.

This article provides general information about tax laws and consequences, but shouldn’t 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.

Visit HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Time is Running Out for Filing Tax Exemption

Palos Verdes homes owners who are 65 or older as of June 30, and own and occupy a residence within the boundaries of the Palos Verdes Unified School District, may apply for the parcel tax exemption for the 2011 -12 school year.  These are for measures P ($209 tax) and V ($165 tax).  The first application must be filed at the district office in person.  The office is located at 375 Via Almar, in Palos Verdes Estates.  You need a document to show your date of birth – such as driver license, birth certificate or passport.  Also,  proof of ownership (such as a property tax bill) must be filed with your application.

Palos Verdes real estate owners – remember the deadline to file is May 31, 2011, at 4:00 p.m.

If you require more information, please call (310) 378-9966 x 404.  Exemption forms can be downloaded by going to www.pvpusd.k12.ca.us.

Photo courtesy of Arvin Design

New Property Tax Decline-in-Value Filing

Owners of Palos Verdes real estate who  purchased a home after July 1, 2003, may have seen a decline in value in which case they may apply to the Los Angeles County Tax Assessor for a reduction in property taxes. Below is a new posting from the Assessor’s website:

“Effective January 1, 2010 there are two significant changes in the filing process for decline-in-value reviews.

  1. The new filing period will be from June 1 through November 30, 2010.
  2. The property owner or authorized agent will be able to submit a request for a decline-in-value review online.”

Property owners may check the LA Tax Assessor’s website after March 1, 2010 to see if their home was one of the hundreds of thousands of homes included in the proactive  review by the Assessor.   The results of that review will be posted by June 30th.  If your home was not listed and you feel you have experienced a decline in value, you may apply after June 1, 2010 (and before November 30).   And applications may be done on-line which will be easier.

Last year, the property owner’s application had to show 3 comparable properties that sold between January 1 and March 30 which was tough for some homeowners as there generally are not as many closed sales in the first quarter  compared to the second or third quarter .   It will be interesting to see if the Assessor has the same requirements for 2010.  Click here to read entire article from Los Angeles County Tax Assessor’s website.

News From LA County Tax Assessor

Carol Quan, Special Assistant, Los Angeles Tax Assessor, spoke at our Palos Verdes real estate Remax office meeting and gave us an update on property tax reassessment. Before June, the Tax Assessor’s Office will pro-actively review 400,000 Los Angeles County single family residences, townhomes and condos purchased between July 1, 2003 and June 30, 2008 to ascertain if there has been a decline in value.

These reviews will be done in the office; there will not be any field checks. Notices will be sent out to property owners in June. If you believe you should have your property taxes reduced and do not receive a notice (or receive one but disagree with the results), you may file a “Decline-in-Value Reassessment Application (Prop 8)” which can be downloaded from the Tax Assessors Website under “Forms“. They will accept 2 comparable sales but that comparable property must have closed escrow between January 1, 2009 and March 30, 2009. The form must be filed by December 31, 2009.

The Special Assistant said that a homeowner does not have to pay anyone to file a Proposition 8 Application. She warned there were 13 companies sending out official looking letters requesting a fee to apply. She recommended ignoring them and going directly to the Tax Assessor’s website. If the Assessor approves a reduction in taxes, you will receive a reduction to your next tax bill.

Property Tax Reductions

I was recently asked about reduction in property taxes for areas of declining values. Although statistics show that Palos Verdes real estate has only declined 6.2% in 2008, it might be worthwhile to request a reassessment from the Los Angeles County Tax Assessor if you have purchased your home in the last few years. By the way, you really can do this yourself and do not need to hire one of the “services” that have popped up that want to charge you for this service.

Go to the Tax Assessor Assessor’s website (can be accessed by clicking here). Locate the Quick Links on the right-hand side and choose “Download Forms – Assessment Forms”. Then choose the first form “Application for Decline in Value Reassessment Proposition 8 RP-87.” You need to have 2 Comparable Sales that support your position. You must show that current values are below your assessed value. I recommend that you contact a Realtor or you can search the Tax Assessor’s site yourself by choosing the “Property Sales & Maps” option under Quick Links, filling in your address then searching for recent sales. The challenge is that the Tax Assessor wants “two comparable sales that sold as close to January 1, 2009 as possible, but no later than March 31, 2009.” A Realtor may be able to find better comps for you.