Your last Minute Real Estate Tax Breaks For Buyers

2016 is right around the corner and so are the taxes that come along with it. Prepare yourself for 2016 by knowing what burdens you’ll have and what real estate tax deductions you can use to save you some money.

In 2015, the senate approved several tax extender bills into 2016. Many tax deductions and credits had expired, and they extended them to roll into 2016 to give us taxpayers a break until the end of the year. The bill they’ve passed makes a few amendments to the IRS tax code, changing what you will owe. Most of these breaks are targeted for special interest groups, but fall upon us as well.

If you own a home, or are looking to close on one, your tax pictures could be different than what you expected for 2016. Here are a few of the tax breaks that could benefit you.

Mortgage debt forgiveness

When a lender writes off any or all part of a forgiven debt, that amount is then passed back to the borrower as taxable for federal income tax purposes. This rule applies to ass debts include home mortgages. In 2007, congress passed the mortgage debt forgiveness act, which called for an exemption.  

The rule called for homeowners who qualified (given they’ve lost their homes) don’t have to pick up their forgiven debt as income on their tax returns. This was only supposed to be a brief law, but has been extended a few times, and they’re debating extending it again into 2016.

Deduction for mortgage insurance premiums

As most markets today are tougher than previously, buyers find that lenders require Private mortgage insurance, to protect them in the case of default. Here’s the thing – as PMI is required, you usually can’t write it off, and unlike the interest you pay on your mortgage. Mortgage insurance payments are typically not deductible for tax purposes.

It was possible to claim and deduct PMI insurance payments for this year 2015, but the bill has to be approved for 2016, and only those who qualify can itemize and claim tax deductions for the cost of PMI.

Deductions for state and local general sales taxes

Everyone knows there are taxes involved when buying a new home, and two you can automatically deduct are property taxes, and interest from your mortgage. You should also consider state income taxes in your area as well as the cost of real estate taxes. Some states do not have income tax, while others have relatively low ones.

The downside to living in a state without income tax is there is no deduction. Congress gave those residents a break by allowing them to deduct state and local general sales taxes paid in 2015. \

Tax credit for residential energy efficient improvements

Going green today is the cool thing to do, as well as cost effective. You can save yourself up to $500 for qualified insulation, windows, doors, roofs, certain water heaters, and HVAC systems. If you can spend the money to make your house more energy efficient, it will pay off down the road, not only in savings, but in tax deductions.

Tax breaks come and go every year; you just have to keep your eyes on what congress extends, and what they don’t. They’ve been on a roll extending them the past few years, but with a new president, they may change or expire December 31, 2015. 

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