Even though we're still six months or so away from that dreaded tax filing season, we wanted to bring to your attention some easy tax mistakes Vero Beach home owners often make and end up paying more than necessary to Uncle Sam. Making any one of these tax mistakes as they relate to your Vero Beach home can cost you money, or worse, draw the IRS to your doorstep for an audit.
Tax Mistakes #1 – Property Taxes in the Wrong Year
You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some tax jurisdictions bill a year behind — in other words, you don't get billed for 2013 property taxes until 2014. This doesn't really concern the IRS. Be sure to enter on your federal tax forms what you actually paid in 2013 regardless of the date of the bill. Don't claim the wrong amount based on dates.
Tax Mistakes #2 – Deducting the Wrong Tax Amount
Most people have an escrow fund held by their mortgage lender to pay your property taxes. Don't deduct the amount escrowed, deduct the amount the escrow service pays the taxing authority. The amount you regularly pay into your escrow account each month to cover property taxes is more than likely more, or may be a little less than your actual property tax bill.
You might have a tax bill for $1,500, but your mortgage lender may have collected $1,600 in escrow during the year as a part of your monthly payment. Only deduct the $1,500 tax bill amount, not 12 months of the escrowed tax amounts you pay with your mortgage payment.
Tax Mistakes #3 – Claiming Too Much Interest Deduction
You can deduct mortgage interest only up to $1 million of mortgage debt. If you have $1.5 million in mortgage debt, deduct only the mortgage interest on the first $1 million.
Tax Mistakes #4 – Deducting Points on a Refi
When you first buy your Vero Beach home, you can deduct all points the year you bought it. However, when you refinance a mortgage, you have to deduct points over the life of your new loan, not all the year you refinanced. If you paid $4,000 in points to refinance a 30-year mortgage, your tax deduction is around $133 per year.
Tax Mistakes #5 – Not Keeping Track of Capital Gains
If you sold your Vero Beach home last year, don't forget to pay capital gains taxes on any profit. Tax laws allow you to exclude $250,000 (or $500,000 if you're a married couple) of any realized profits from taxes. If your cost basis for your home is $200,000 (what you paid for it plus any improvements) and you sold it for $400,000, your capital gains are $200,000. If you're single, you owe taxes on $150,000 of gains. See IRS Publication 523 for more details on capital gains when selling your Vero Beach home.
For more tax related tips and articles as they pertain to your Vero Beach home, click over to our Taxes section under Vero Beach Real Estate Categories to your right.