Tax Breaks of 2014

Whether you are buying a house or currently own a home, let us take a look at how your taxes will stack up. No one wants to pay more in taxes than they had anticipated. Trust me; it’s worth it to look at this now than in April.

                After a year of debate, the incompetent congress has finally approved the tax extenders bill. But what exactly is this bill? The tax extension bill is a collection of more than 48 deductions and credits that had expired, which gives us taxpayers a break through the end of 2014.

                It’s not easy to know all the current tax laws when our congress procrastinates on every issue and slides the laws by at the last moment. This bill is targeted for special interests, for example, the research and development credit, which you may think doesn’t apply to you.

                However, they do apply to you if you own a home or are looking to buy one.  Let’s have a look at the tax breaks in this bill that apply to you.

                Mortgage Debt Forgiveness: when a mortgage lender writes off all or any part of a debt, the amount that is forgiven is then passed back to the borrower as taxable for income tax purposes. This rule applies to all debts, even home mortgages. In 2007, congress passes the mortgage Forgiveness Debt Relief Act, which allowed for an exemption.

                Under this rule most homeowners who have either lost their home to foreclosure, or qualified for other repayment adjustments do not have to pick up the forgiven debt as income on their tax returns. The original intentions of this rule were supposed to be temporary, but have been renewed three times.

                Deduction for Mortgage Insurance Premiums: Lenders are way more cautious in a tough market. Lenders require private mortgage insurance to protect themselves in a default to buyers who have recently finances homes in the past few years.

                Even though the lender required you to get PMI as a condition of getting the mortgage, you cannot write it off. Unlike the interest paid on your mortgage, mortgage insurance payments are generally not deductible for tax purposes. However, you can now deduction the cost of your PMI!

                Deduction for State and Local General Sales Taxes: A big consideration when you buy a new home is a tax benefit and cost. Even though you’re paying property taxes, you can now deduct them, plus the interest from your mortgage from your gross income to reduce your overall taxable income.

                Another aspect to consider when selecting where to buy your home, is the state income tax. These states have no income tax, Alaska, Florida, Nevada, South Dakota, Texas, and Washington. Plenty of other states have low income tax.

                Here is the only downside to living in a state with no income tax. Without an income tax, there’s no deduction. To lift the pain of no deduction, congress gave those states a break by allowing them to deduct state and local general sales taxes paid rather than state and local income taxes.

                Tax Credit for Residential energy-efficiency Improvements: Today it is trendy to go green. It can also be cost effective as well. For 2014, there’s a $500 tax credit available for the installation of qualified insulation, windows, doors, and roofs.  You can also add in certain water heaters and qualified heating and air-condition systems. It might be expensive to tackle such a project, but it’s time to invest if you can.

                 These tax credits might not be around for much longer, but who knows, they might be extended again. These do expire on December 31, 2014. On January 1, 2015, the breaks will vanish and homeowners could see a hike.

Discussion

#1 Posted by Bunny at 12/30/2014 9:53 AM
An instructive post. People to really know who they want to reach and why or else, they'll have no way to know what they're trying to achieve. People need to hear this and have it drilled in their brains..
Thanks for sharing this great article.

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