We're all about indulging in Starbucks' latest seasonal concoction or this season's "it" bag. (OK, maybe a knockoff version of this season's "it" bag.) Trends are just plain fun — and they keep
How Moving To A New Home Affects Your Taxes
Dated: January 6 2017
New year, new tax season ahead – even though many of us may not be ready to face it. Whether you’re filing your taxes on your own, using online services or enlisting the skills of an accountant or tax preparer, the same question remains a key to your return: Did you move last year?
It’s a simple yes or no question, but the answer can lead you to a far longer list of questions, dictating how much you may owe or get back from the IRS.
Here are three scenarios that may apply to you, and what you should know to prepare for tax season.
If you moved to a new state. It doesn’t matter if you bought a home, sold one, rented or couch-surfed, if you moved to a new state in 2016, you’ll need to file a part-year tax return. Whether you changed employers or transferred to a new location while employed with the same company, you should receive W-2 forms that provide your income information for each state you resided in during the year.
If you’re filing your own taxes, an online service like TurboTax or H&R; Block’s online product can be helpful in guiding you to the right part-year return information. Lisa Greene-Lewis, a certified public accountant and TurboTax blog editor, explains that an online filing system's question-and-answer format automates much of the process.
“It’ll ask, ‘Did you work in a different state?’ And then everything you put in for your federal return, it automatically calculates everything for your partial-year return,” says Greene-Lewis, a former U.S. News contributor.
If you moved for work purposes, Greene-Lewis says there’s a possibility you’ll be able to deduct moving expenses. “Anything like storage, a moving company, your travel to get to where you’re moving – that could be deductible, so you want to make sure you keep track of that information,” she says.
Moves paid for by your employer are not tax-deductible, but keep any receipts for relocation expenses on hand in case you discover they are not eligible for reimbursement and may then be considered tax-deductible.
If you purchased your home. Buying a home, especially for the first time, welcomes you to the new world of property expenses, but there are also many tax benefits to owning a house. Luckily for homeowners, prorated mortgage interest (up to $1.2 million of debt), prorated real estate taxes from the point of purchase and loan origination fees – or “points” – are all tax-deductible.
If you purchased your home with a mortgage, one key piece of paperwork you’ll need is the 1098 form you receive from your mortgage company, explains Nate Rigney, a senior tax research analyst at The Tax Institute at H&R; Block.
“The form 1098 should report deductible mortgage interest, points if the buyer paid any deductible points and real estate taxes paid out of escrow. It should also show mortgage insurance premiums, which if paid in 2016, are also deductible,” Rigney says.
If you purchased your home with cash, you won’t receive a 1098 form and won’t have mortgage interest or loan origination fees to report on your taxes. But real estate taxes are still deductible.
“Instead of being paid through escrow and being reported on a 1098, [homebuyers will] just have to keep the receipt from the tax assessment to prove they are paying their real estate taxes,” Rigney says.
Other important pieces of paperwork for new homeowners when it’s time to file taxes are the closing statement, drawn up by an attorney or title insurance company, and theClosing Disclosure, which is legally required to be provided by the lender to the buyer at least three days before closing. Both forms clearly explain the financial details of the deal, including dollar amounts paid by both parties, the mortgage interest rate and any points paid, allowing for you or your tax preparer to easily find the necessary numbers to report to the IRS for potential deductions.
The Closing Disclosure is one of two forms that replaced the HUD-1 Statement in 2015, similarly laying out the details of the transaction that, for an accountant, makes deciphering the different costs much easier, says Bret Hodgdon, a partner at Davis & Hodgdon Associates CPAs in the Burlington, Vermont, area.
If you refinanced your mortgage, you can similarly deduct points paid at the time of refinancing, Hodgdon says, though it's typically in smaller portions over the duration of the loan rather than all at once.
If you sold your home. Selling a home doesn’t come with all the mortgage-related deductions for your return, but in most cases you can keep the profit from the sale tax-free.
A profit of up to $250,000 for individuals and $500,000 for couples filing jointly does not have to be reported to the IRS as long as you primarily lived in the residence for at least two of the last five years.
In addition to keeping the closing settlement for your records, you should also keep evidence of any major home improvements you’ve done on the property. A roof replacement or new floors, for example, may be used to subtract from the total profit as expenses incurred for the home.
“[Homeowners] need to add that to the cost of their home when they sell,” Greene-Lewis says.
Unless you offloaded a multimillion-dollar home, property values rarely increase significantly enough that the $250,000 or $500,000 exclusion is applicable to the typical home seller.
Hodgdon notes he sees home values averaging about $350,000 with clients, and at that price point “to have your home more than double is not likely.”
Even in scenarios where you didn’t live in the home for the required time period, Hodgdon notes that factors outside your control, such as a job transfer or illness that required you to move, may allow you to avoid paying taxes on a portion of that profit.
“You might be able to get half of the exclusion based on unforeseen circumstances,” Hodgdon says.
By Devon Thorsby at USNews.com
For Mark Ross, founder of Ross NW Real Estate and professional real estate broker, real estate has always been the career of choice. During his 30 years in the industry, Mark has gained experience in ....
Latest Blog Posts
If you live in a small space, you’re used to having to come up with clever solutions to maximize your home’s potential. So whether you’re looking to renovate a studio apartment or small house,
You can just picture it: a pretty cottage garden overflowing your front yard, with tons of heavy, scented blooms.Well, at least you can picture it with your eyes closed. With your eyes open all you
The Federal Housing Finance Agency didn’t have a set date for its new refi option targeted to low-income borrowers when it announced the program last week. But on Wednesday, both Fannie Mae and