Tuesday, January 14, 2014

Tax breaks expire for homeowners

If you keep a sharp eye out, you'll notice that you'll be paying more taxes soon - not this year, but next - if members of Congress don't act in 2014 to prevent it.

Which means you'll be paying more in taxes next year.

The good news for members of Congress is that they can say they didn't "raise" taxes; they only allowed several tax deductions that have been around for years to expire at midnight on December 31.

Private mortgage insurance premium deduction

If you put less than 20 percent down, chances are good that you're being charged PMI. It's used to protect the lender in case of default. It is usually a small percentage of the monthly payment, so most homeowners don't give it much thought. Over the course of 30 years, that small percentage can add up to thousands of dollars. Depending on your tax bracket, deducting it on your federal tax return can trim your cost by 20-35 percent.

Loan forgiveness

When a homeowner gets under water - owes more than the home is worth - they often use a tactic known as a short sale. The lender accepts what the home sells for in exchange for paid-in-full status. The difference between what was owed and what was made is considered taxable income. However, that tax had been waived for years. This could potentially cost a homeowner who does a short sale thousands of dollars at tax time.

Energy efficient tax credits

For the last few years, homeowners received credits for home improvements that increased the energy efficiency of their home. Those projects could include installing better doors and windows, insulation, furnaces, heat pumps, water heaters and central air conditioning. The credit for those will expire; however, some of the credits for installing solar water heaters, wind turbines, geothermal heat systems and other things will remain.

These three tax breaks will remain in effect for your 2013 return. There is always a chance that Congress will renew some or all of them, but it doesn't seem likely. Make sure to talk to your tax preparer.

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