Tax Break: The TurboTax Blog » property taxes

Life Events Series: How Will Buying My First House Help My Taxes?

Michael Rubin — Wed, 13 Mar 2013 02:20:00 +0000

A great milestone of your financial life is the purchase of your first home. While less exciting, the tax implications of that achievement are no less critical. After all, home ownership creates several new opportunities for you to save on your federal income taxes. Got your attention?

Mortgage Interest Deduction

That big fat mortgage payment you now have to pay every month has an upside. The interest portion of every payment is tax deductible. Keep in mind that, at the beginning of your mortgage, most of your payment is interest, meaning that the overwhelming majority of your payment is tax deductible.

Real Estate Tax Deduction

Every dollar you pay in real estate taxes is deductible. While it’s never fun to learn that your property taxes have gone up again, at least you will be able to take some solace in knowing your tax deductions (and your resulting income tax savings) will increase at the same rate.

Charitable Donation Deduction

While the charitable donation deduction might seem unrelated to a home purchase, this is income taxes we’re talking about. Before you purchased your home, you may not have had enough tax deductions to itemize your deductions.

Why? Since your standard deduction was greater than your itemized deductions, you did not benefit from any of the itemized deductions you could have otherwise taken. But when you became a homeowner, the mortgage interest and real estate taxes alone often make it so that you will be able to itemize and you are now eligible for additional tax deductions. The most common of these is the charitable donation deduction. So, if you tithe at church or give clothes to the Vietnam Veterans, you will now also receive a tax benefit from doing so.

Other Considerations for First Time Home Buyers

Save your closing form (HUD). When you file your tax return for the first time after buying a home, additional expenses incurred on your HUD may be deductible, including prepaid interest (points) you pay at closing.

Save all of your home improvement receipts. You are likely to sell your home one day. Most home sales do not result in income tax. However, it is possible if you move very quickly or make a very big profit. To lessen the odds you will owe capital gains taxes on the sale of your home, save your receipts!

Welcome to the world of home ownership. It can be wonderful and expensive. Make sure you take advantage of every opportunity to keep your costs in line. Start with taking maximum advantage of the tax deductions available to you.

Don’t worry about knowing all of these tax deductions, TurboTax will ask you simple questions, and give you the tax deductions you’re eligible for. If you have questions, only TurboTax lets you talk to CPAs, Enrolled Agents, and tax attorneys while you prepare your tax return, free.

How Do Property Taxes on Second Homes Work?

joshritchie — Mon, 17 Sep 2012 13:00:01 +0000

The deadline to appeal property taxes is September in many areas. With the decline in property values, it may be worth appealing your property tax value to make sure you are paying the correct property tax amount. You may be able to save money. Josh Ritchie gives us details on how frequency of use of second properties may impact how you report property taxes.

When we think about vacation homes, taxes are rarely the issue that commands our attention. Yet while the beach out back or the stellar restaurant down the street might be more exciting to think about, taxes are a huge consideration in their own right. Failure to properly plan and budget for property taxes could transform your dream vacation home (or timeshare) from an uplifting getaway into a financial nightmare.

Property Tax

Here, we explore how the details of your vacation home situation affect your property tax obligations and preparation strategies.

How Frequency of Use Affects Property Taxes

Contrary to some assumptions, the government does not simply apply a blanket tax obligation to all vacation home owners. Rather, they consider how frequently the home is occupied, and whether the primary occupants are you (the owner) or tenants that you rent to.

SmartMoney helpfully divides vacation home ownership (for tax purposes) into three categories:

Use a lot, rent a lot
Rent a lot, use a little
Use a lot, rent a little

Each category is summarized and explored in more detail below.

If you use your vacation home a lot, and also rent it a lot…

Your vacation home is considered a personal residence. As SmartMoney explains, this is potentially beneficial for you:

Specifically, this applies to homes that are rented more than 14 days a year and have personal use of more than 14 days or 10% of the rental days, whichever is greater. Personal use includes use by family members and anyone else who pays less than market rental rates. Vacation homes fitting this description are considered personal residences.

“This helps you, because Uncle Sam lets you deduct interest on up to $1 million of mortgage debt (and up to an additional $100,000 for home equity loans). Property taxes are generally deductible, no matter how many homes you own. Those fortunate enough to own more than two homes can pick the two with the most mortgage interest each year which is usually the main residence and the vacation home with the biggest loan.”

The main thing to keep in mind is that you must deduct the expenses from your own use of the house and the expenses incurred while renting separately.

EXAMPLE SCENARIO:

To use SmartMoney’s example, we will assume your vacation home is rented for three months, used by your family for two, and vacant for the other seven. Vacant time, it should be clarified, is considered personal use for tax reasons. Thus, you would deduct three months worth (25%) of the interest and taxes from rental income, and nine months (75%) from your itemized deductions on Schedule A of your tax return.

Keep in mind that this category applies to “homes that are rented more than 14 days a year and have personal use of more than 14 days or 10% of the rental days, whichever is greater.”

If you rent your vacation home a lot, but only use it yourself a little…

You are treated differently for tax purposes. Specifically, the rule is that your vacation home will fall under the category of “rental properties rather than for personal residences if you rent more than 14 days a year and if your personal use doesn’t exceed 14 days or 10% of the rental days, whichever is greater.”

This scenario varies considerably from the first category. For one thing, since your home is a rental property, rather than a personal residence, you cannot deduct the interest expenses incurred during your own use. But there are benefits as well. If you incur rental losses, you can write these off as a taxable loss as long as you “actively participate” in the property by making day-to-day management decisions and meet personal income limits.

If you use your vacation home a lot, but only rent it out a little…

By far the simplest and most beneficial category, this applies to homes “that are rented for fewer than 15 days a year and used by the owner for more than 14 days.” If this describes you, then your vacation home is actually a personal residence for tax purposes. As such, you can deduct the interest and property taxes as itemized deductions, in the same manner you do for your actual home.

Best of all: you do not have to legally declare any rental income. Although you don’t get any write-offs for operating expenses, this is a benefit well worth taking advantage of!

The Highs and Lows of State Property Tax [Infographic]

joshritchie — Wed, 08 Aug 2012 22:25:29 +0000

Today it was predicted, that nationwide home prices are expected to dip in 2013 and 2014, however in some markets prices are expected to increase due to the shrinking supply of homes. But what about the assessed value of homes and property taxes? With the last chance to appeal the assessed value of your home quickly approaching, we wanted to share our infographic that compares state-by-state property taxes, which is one of the largest home related expenses we pay and is hands down a significant revenue source for state and local governments.

Interactive by Column Five

How does your state’s property tax fare? Well, at least property taxes are tax deductible.

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What’s the Cost of Your American Dream?

Elle Martinez — Fri, 15 Jul 2011 14:00:48 +0000

I love where I live in North Carolina – the mountains and the beach are only a couple of hours away, depending on which direction you go. To have different landscapes and cities around definitely is a plus in my book. Sometimes though I wonder what it would be like if we moved back to the beach or if we tried out mountain living. I’m still trying to figure out where would be the ideal place.

What about you? What’s your dream place to live in the United States? Are you a laid back person that enjoys the mountains or do you prefer the hustle of the city? Are you more of a beach bum or do you much rather hang out at the ski slopes?

Before you just pack up and move, it’s good to see how your day to day living will be in your dream spot and that means running the numbers. I thought it would be fun to see what the cost of living would be in different parts of the country. I was curious to see what are the most and least expensive cities in America.

Most and Least Expensive U.S. Cities to Live In

High Cost of Living

According to Kiplinger, here are the 10 most expensive US cities to live in:

New York City, NY
Honolulu, HI
San Francisco, CA
Santa Ana, CA
Stamford, CT
Fairbanks, AK
Washington, D.C.
Oakland, CA
Los Angeles, CA
San Diego, CA

Looks like the West Coast and all its beautiful weather comes at a steep price.

Low Cost of Living

According to Kiplinger, here are the 10 least expensive US cities to live in:

Fort Smith, AR
Pueblo, CO
Harlingen, TX
McAllen, TX
Johnson City, TN
Conway, AR
Springfield, IL
Covington, KY
Louisville, KY
Omaha, NE

Kiplinger notes that a New Yorker would have to make $127,935 a year to have the same standard of living as someone earning $50,000 in Fort Smith, Ark.

Home Sweet Home

Renting a place is a great option for those looking to try a new place to live. The average rent can vary place to place and depending on the size of the city, you can even notice a difference in neighborhoods.

What if you’re looking for something more permanent, like buying a home? Purchasing a house can make the gap even more noticeable. How big is the difference? If you wanted to get a home outside of Atlanta, GA you can find a family sized four bedroom house for just under $100,000. Looking for something a bit more Mid-Atlantic? Chapel Hill, NC has a four bedroom house for about $380,000.

I find it interesting to see what you can get around the country for certain amount of money, so I try to keep up with the NY Times Real Estate page for when they run the series.

Bills, Bills, Bills

No matter where you live in the United States (or anywhere really), you’ll have to made due on your monthly expenses. However your location can play a huge role on how expensive or inexpensive your bills will be.

That was the case for us when we deciding whether or not to move from Virginia to North Carolina a few years back. We found housing to be much more reasonable, but the gas prices to be a bit more expensive. after running the numbers, we saw that it was cheaper for us to move than to stay.

Using the handy cost of living calculator gave us a chance to get an idea of what areas to consider and what area to take off our list. Asking friends and family who lived around also helped us get a realistic perspective as well.

Deciding on the Right Location

So how do you decide on where your American Dream location is? I’d start by narrowing down what part of the country you enjoy the most and ask yourself why you love it. If you’re more of an urban cat and love having a diversity of culture, music, art, and entertainment, then looking into the big metropolitan areas like Chicago, Los Angeles, and New York City. However, you should also look at some good sized college towns and cities that may offer you the same perks without the hefty price tag.

The good news is that you can always move

Property Taxes and You

Elle Martinez — Mon, 13 Jun 2011 14:21:43 +0000

We just received another statement from our bank, updating us on the house. Since we’ve been paying extra towards the principal, we’ve been looking forward to seeing the balance go down. Looking at our mortgage statement, though, I couldn’t help but notice that a portion of our money in escrow is for mortgage insurance, home owner’s insurance, my personal favorite, property taxes.

Our property taxes for our town home are due by the end of December every year. We get a letter from our county and municipality during the summer to let us know what our tax obligation is. By having a portion of our mortgage payments allocated for the bill, we’re able to have it taken care of painlessly.

What are Property Taxes?

Curious to find out more about property taxes, I decided to check online and dig around a bit. Property taxes are used as a source of revenue for local government.The revenue is used for public services such as fire, police, and school funding. Property tax is determined by the assessed value of your piece of real estate and the current rate in your location.

Most Expensive Places for Property Taxes

CNN had a fascinating piece on some of the most expensive counties in the United States for property taxes. It may come as no surprise to many to see that the Northeast had the highest property taxes in the nation.

New York
New Jersey
Connecticut
New Hampshire

Since tax rates can change through the years, it’s helpful to check lists like the one CNN has regularly.

Learning How Much You Owe

If you’re curious to see what your municipality’s current tax rate is or if you want to see what your house is assessed for, go online to your local government’s tax/revenue department’s site. We used the site for the city of Raleigh and we were able to see our past tax bills as well. It’s quickest and easiest way to stop on top of it.

Due to the downturn in real estate with some areas of the country, it doesn’t hurt to check to make sure your assessment is accurate. You may be able to dispute your tax bill and get it lowered if you can prove that property value has decreased since the last assessment.

Your Property Taxes

I’d love to see how much everyone is paying with their property taxes. What is your local property tax rate? Does your escrow account take care of the annual payments or do you take care of it yourself?

Where are the Least Taxing Places to Live?

Ginita Wall, CPA, CFP® — Mon, 06 Jun 2011 14:00:48 +0000

Many people move in the summer – some move down the street, others across town, and some relocate miles and miles away. So ponder this: if you could live anywhere, where would it be? A sunny climate with temperate weather? That’s certainly one factor to consider. Here are the other top factors in most people’s minds: A place where the cost of living and property taxes are low, the people are friendly, kids can roam freely. Oh, and somewhere that jobs are plentiful, pay well, and easy to find.

The jobs part of that prescription may be hard to find these days, but there are many places that fit the rest of the bill. Some of the cheapest places to live in America include Omaha, Detroit, Indianapolis, Cincinnati, Pittsburgh, Minneapolis- St. Paul, Cleveland, Oklahoma City and Houston.

The thing that many places on that list have in common is that they are in the heart of America. Think rolling hills and farm land, as opposed to coastal and mountains. Not exactly the sunny weather you had in mind, perhaps, but the tax climate in most of those places is quite temperate, and contributes to the inexpensive cost of living. Property taxes for homeowners, income taxes, sales taxes, gasoline taxes — they all play a part in determining your overall cost of living.

The state with the best tax climate for you depends on your circumstances. If your income is high, consider the states that have no income taxes: think Florida, Texas and the state of Washington. If you are a shopper, your sprees will cost less in a state with no sales tax, such as Oregon, New Hampshire or Delaware. Concerned about rising property taxes? California’s Proposition 13 limits property taxes to 1% of the original cost of the property, plus a small inflation factor. Drive a lot? You’ll like the lower gasoline taxes in Alaska, New Jersey and Georgia, the lowest in the nation. If you are a smoker, you’ll pay high cigarette taxes everywhere, but less in Missouri, Virginia and Louisiana.

The source of your income is also important when deciding which state has the lowest taxes. Pensioners with income from federal, state or local pensions will pay no tax on that income in Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, New York and Pennsylvania. But income from other sources may be taxed: Kansas taxes Social Security income if your total income is over $75,000 and Massachusetts and Kansas tax all income from private-sector retirement sources.

If you are retired from the military, you might want to move to one of the many states that don’t tax retired military pay. Those states include Alabama, Alaska, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Nevada, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, South Dakota, Tennessee, Wisconsin and Wyoming.

If you aren’t yet retired and you contribute to an IRA, you might steer clear of New Jersey, Massachusetts and Pennsylvania, since those states don’t allow a deduction for IRA contributions.

So where is the best place for you to live? For most of us, the truth is that there’s no place like home. That’s why half of Americans live within 50 miles of where they were born.

Who Pays the Most Property Taxes By State?

joshritchie — Fri, 19 Nov 2010 19:00:46 +0000

Take a look at which states pay the highest percent of property taxes as a percentage of home value or percent of income. New Jersey comes in as number one, paying the most as percentage of home value and income.

Interactive Content by Column Five Media.

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