It’s safe to say that the majority of people don’t find doing taxes to be an exciting process and don’t exactly look forward to tax season. You have to get all of your paperwork together and fill out documents which can be time consuming and confusing. However, if you’re a new homeowner and recently purchased a home, you can look forward to the advantage that you will receive more tax benefits. If you’re a new homeowner, tax professional David Stewart discusses the following common mistakes to avoid this upcoming tax season.
Mistake 1: Filling for the Wrong Year
Many new homeowners accidentally mix up dates when filing and deduct taxes for the wrong year. If you choose the wrong year, you may end up filing the incorrect amount and may receive an underpayment refund or an audit. You take a tax deduction for property taxes in the year that you actually paid them. So if you’re filing in 2015, you’re actually filing for 2014 taxes. Many tax authorities work a year behind, which means you’re not billed for 2015 until 2016. Make sure that your dates are correct to avoid a refund or audit.
Mistake 2: Not Tracking Home Improvement Expenses
The majority of homeowners purchase a home that needs improvements. The money you spend to make necessary improvements should be tracked since they may provide tax deduction opportunities. Improvements such as energy-efficient features, window installations, and doorway placements, among others, can definitely benefit you so be sure to keep a detailed record of all expenses.
Mistake 3: Misjudging the Home Office Tax Deduction
If you use part of your home for business, you may be able to deduct expenses for the “business use of your home.” However, this deduction can be complicated and doesn’t usually result in much of a deduction. To ensure this deduction is filed correctly and to avoid mistakes, you should seek the expertise of a tax professional.
Mistake 4: Failing to Itemize
Like home office deductions, itemizing can increase your tax refund. However, you will have to file a longer form to get the most of these benefits. Again, you may want to contact your tax adviser for help in this regard.
Mistake 5: Claiming Too Much for the Mortgage Interest Tax Deduction
As a taxpayer you are allowed to deduct mortgage interest up to $1 million of mortgage debt, and you can deduct up to $100,000 in home equity debt.
Mistake 6: Deducting the Wrong Escrow Amount
Typically, when you pay your mortgage each month, you also pay into an escrow account. This is a portion of your mortgage payment used to pay for real property taxes and hazard insurance. But some homeowners may try to deduct their entire escrow balance. The only amount you can deduct from this balance is the amount that was used to pay taxes. You should contact the company responsible for your escrow account to determine how much of the balance was used to pay these taxes.