Many investors took advantage of the lower prices for real estate in combination with the lower interest rates and purchased investment and rental property. Unlike in the past, the lower rates and prices promise a faster return on their investment, with equity returns sooner rather than later.
If this is your first turn as a landlord, there are some tricky tax situations that you will need to pay attention to during your first year. Even a seasoned landlord will have to keep well informed of the various tax changes from year to year.
For instance, any rental income that you receive for the year will need to be included as income. This amount will include any deposits, non-refundable deposits, first and last month's rent, and any advance rent payments. It doesn't matter when the advance payments are for, you must count them for the year you received them.
Some items that may be a little trickier are items that your tenant does to maintain the property for a discounted rental amount. You still have to claim the value of the task performed as income, and then deduct it as well as an expense. You must also claim as income any expenses paid by your tenant. If your tenant deducts the amount from their rent, you will need to claim the full rental amount, and then deduct the expense.
A less common situation is where a tenant may pay you to exercise an opt out clause in a lease. Again, this is rental income, as are lease with option to buy option payments.
Two small tax breaks are included for renting out space in your residence. You needn't disclose the rent you receive, as long as it is for less than 15 days.
These are the places that the IRS loves to catch people cutting corners, so do yourself a favor and give them no reasons to dig deeper. Consult your tax professional and your real estate attorney for advice in all legal tax and landlord tenant matters.
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Crowley & Cummings are real estate attorneys located in Dedham MA specializing in real estate closings, title examinations, complex title issues, purchase & sale agreements, condo conversions, and other related services. They service lenders and mortgage brokers, real estate agents, as well as buyers and sellers in Massachusetts, New England, and throughout the US. To learn more visit them online at www.CrowleyCummings.com.
Showing posts with label tax breaks. Show all posts
Showing posts with label tax breaks. Show all posts
Thursday, January 20, 2011
Thursday, December 23, 2010
Home Owner Tax Breaks Often Overlooked
State Sales tax on materials purchased to repair your home...
Depending upon where you live, if your state has sales tax already this deduction could amount to an even larger chunk of money as it gets added on top of any state income tax deduction. You can visit the IRS website for help using their online calculator to figure this deduction.
Refinancing points...
In contrast to when you purchase a home and are allowed a single large deduction for the mortgage, when you refinance, you will deduct over the life of the loan. So for instance, your annual deduction on a 20 year loan, will be 1/20th of the points.
It may not seem like very much, but it is important to deduct it anyway. If you sell the house before the refinance loan period is completed, you are allowed to deduct any remaining points all at once upon filing after the sale. Also, if you refinance your refinance loan, any points you incur under the new loan, will also be amortized over the life of the loan in this way.
Energy saving home improvements...
Over the past two years of 2009 and 2010, if you have made home improvements, you are entitled to a full deduction of up to $1,500. The credit can be applied toward qualifying window and door upgrades, heating elements like biomass fuel stoves or high efficiency furnaces, and water and air quality upgrades.
For homeowners installing residential alternative energy components that qualify, you can deduct a full 30% of the cost without limit and until the year 2016.
Home buyer credits...
Although this credit would be hard to miss, it pays to research the deadline extensions to see if you can qualify to take any of the myriad home-buyer tax credits that are currently available under the many programs offered by the government.
If you are unsure whether you qualify for any of these savings, talk to an experience professional for more information.
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Crowley & Cummings are real estate attorneys located in Dedham MA specializing in real estate closings, title examinations, complex title issues, purchase & sale agreements, condo conversions, and other related services. They service lenders and mortgage brokers, real estate agents, as well as buyers and sellers in Massachusetts, New England, and throughout the US. To learn more visit them online at www.CrowleyCummings.com.
Depending upon where you live, if your state has sales tax already this deduction could amount to an even larger chunk of money as it gets added on top of any state income tax deduction. You can visit the IRS website for help using their online calculator to figure this deduction.
Refinancing points...
In contrast to when you purchase a home and are allowed a single large deduction for the mortgage, when you refinance, you will deduct over the life of the loan. So for instance, your annual deduction on a 20 year loan, will be 1/20th of the points.
It may not seem like very much, but it is important to deduct it anyway. If you sell the house before the refinance loan period is completed, you are allowed to deduct any remaining points all at once upon filing after the sale. Also, if you refinance your refinance loan, any points you incur under the new loan, will also be amortized over the life of the loan in this way.
Energy saving home improvements...
Over the past two years of 2009 and 2010, if you have made home improvements, you are entitled to a full deduction of up to $1,500. The credit can be applied toward qualifying window and door upgrades, heating elements like biomass fuel stoves or high efficiency furnaces, and water and air quality upgrades.
For homeowners installing residential alternative energy components that qualify, you can deduct a full 30% of the cost without limit and until the year 2016.
Home buyer credits...
Although this credit would be hard to miss, it pays to research the deadline extensions to see if you can qualify to take any of the myriad home-buyer tax credits that are currently available under the many programs offered by the government.
If you are unsure whether you qualify for any of these savings, talk to an experience professional for more information.
------------------------------------------
Crowley & Cummings are real estate attorneys located in Dedham MA specializing in real estate closings, title examinations, complex title issues, purchase & sale agreements, condo conversions, and other related services. They service lenders and mortgage brokers, real estate agents, as well as buyers and sellers in Massachusetts, New England, and throughout the US. To learn more visit them online at www.CrowleyCummings.com.
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