Tax Season Has Officially Begun: Time to Claim Those Tax Deductions Before They Go Away

By a News Reporter-Staff News Editor at Real Estate Weekly News -- Hitting the send button to e-file a tax return or dropping an envelope with completed forms in the mail is always a welcome relief, especially if a refund is expected. However, discovering that you missed taking a qualified deduction or suddenly learning you had a tax break you didn't take advantage of can turn relief into frustration.

Both deductions and tax credits can make significant impacts in reducing or offsetting taxes owed, but taxpayers must first find out whether they qualify for certain tax breaks and not assume they're covered.

"With tax reform on the agenda for 2017, several tax deductions and credits might be sacrificed in order to lower tax rates, so make sure that you claim all of the tax breaks to which you are entitled before they disappear," said Mark Luscombe, JD, LLM, CPA and Principal Federal Tax Analyst for Wolters Kluwer Tax & Accounting. "Consulting a tax professional about potential deductions and credits that you may not be aware of is a good idea, but it pays to do a little research ahead of time so you know what to ask about." Need-to-know Tax Deductions and Credits Checklist ___ Home Office Deduction - A simplified safe-harbor method for this deduction was introduced in 2013 for those who are self-employed and work out of their homes. It is based on the size of home office and is designed to be a simple calculation.

Here's how it works: Eligible taxpayers can deduct $5 for every square foot of workspace used - up to a maximum of 300 square feet. So, if you use a den or spare bedroom at home as your home office and it measures 18 X 15 feet for a total of 270 square feet - multiply that by $5 for a total home office tax deduction of $1,350.

The simplified safe-harbor option saves time compared to the standard home office tax deduction calculation of figuring related expenses and how they are apportioned over the course of the year to a home office. One taxpayer-friendly benefit is that one may choose which calculation, either the safe-method or the standard method, to use each year to provide the largest tax deduction. ___ Mortgage Interest Deduction - As a result of a recent court decision, the IRS has changed its position and now allows the mortgage interest deduction limits to be applied on a per taxpayer rather than a per residence basis. This means that two unrelated owners of a home can now each claim a mortgage interest deduction related to up to one million dollars in mortgage debt related to purchase, construction or improvement of the home and up to $100,000 for a line of credit secured by the home. ___ Mortgage Debt Exclusion - The PATH Act, enacted in December 2015, prevents forgiveness of mortgage debt from suddenly being counted as additional taxpayer income, since the mortgagor no longer is making payments on the forgiven portion, but not pocketing the savings in cash. Those who qualify may benefit on a principal residence of up to $2 million ($1 million for a married taxpayer filing a separate return) through 2016. The Act also modifies the exclusion to apply to qualified principal residence indebtedness discharged in 2017 if the discharge is made under a binding written agreement in 2016.

In other words, taxpayers who enter into a foreclosure, short sale or home loan adjustment in writing before December 31, 2016, but do not complete the transaction until after January 1, 2017, may qualify for the exclusion. Because the forgiven portion is not considered added income, taxpayers will not vault into a higher tax bracket or be taxed on that amount within their current bracket. ___ Home Mortgage Insurance Premium Deduction - It's one of the more popular deductions that was extended through 2016 with passage of the PATH Act - allowing most homeowners to write off their home mortgage insurance premium as interest paid on a mortgage. Taxpayers can deduct mortgage interest paid on their primary home and on a second or vacation home. In addition, mortgage interest on a line of credit or home equity loan, which is secured by the home, is also deductible. ___ Charitable Donations - Taxpayers who donate money or non-cash property to qualified charities may be entitled to a tax deduction. While charitable gifts via a check may be easiest to track, a receipt or official acknowledgement of the donation from the charitable organization is a mandatory requirement for tax reporting.

Keywords for this news article include: Mortgage, Real Estate, Wolters Kluwer Tax & Accounting.

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