Common homeowner tax mistakes to avoid
There are a number of ways that homeowners can benefit when filing their taxes. However, there are an equal number of mistakes that are commonly made. This year, get the most out of homeownership – and prevent the IRS from coming to your doorstep – by avoiding these common tax mistakes.
1. Deducting the wrong year’s property taxes
Homeowners are eligible for a tax deduction for the property taxes in the year they paid them. However, many taxing authorities work a year behind, meaning 2016 property taxes may not be paid until 2017. Make sure your federal forms reflect how much you paid in taxes during that year, no matter the dates on the tax bill.
2. Misjudging the home office tax deduction
Whether you own your own business or work from home part-time or full-time, there is an available deduction for having a home office. While not substantial, many homeowners fall prey to misjudging or misrepresenting their own office on their tax deductions. Federal forms now offer a simplified solution; homeowners can deduct $5 per square foot up to 300 feet of office space, equally $1,500.
3. Failing to track home-related expenses
If you are claiming expenses related to your home on your taxes, it is extremely important to have the proper documentation to back them up. Scanning or storing home-related expense receipts can keep your files neat and organized in case you ever need to produce them for the IRS.
4. Confusing escrow for taxes
Many lenders escrow funds to cover your home’s property taxes; however, the amount escrowed might not equal the amount in taxes you actually paid. Make sure to only deduct the amount actually paid, which should be listed on the Form 1098 sent to you by your lender; if they do not send you this form, contact them directly to find out how much you paid during the year.
5. Incorrectly filing energy tax credits
Making your home more green with eligible improvements can help you qualify for certain energy tax credits. Claiming these deductions involves the complicated Form 5695. This may require you to cross-check up to half a dozen other IRS forms. Likewise, keep in mind that the caps vary by what improvements are made, and many only qualify for a single, lifetime credit.