7 Tips On Property Taxes Every Home Owner Needs To Know
7 Tips On Property Taxes Every Home Owner Needs To Know
What You Must Know About Property Taxes
As a homeowner, you are probably aware of the fact that you must pay property taxes. If you just discovered this today, then you are likely in trouble already! Nonpayment of property taxes can result in serious issues, including loss of property. Today, learn about your options when paying property taxes and see to it that your payments are on time and up to date.
1Keeping a Trail of Paper Records
With modern technology, a lot of facts can be kept as soft copies. However, when it comes to financial records, especially property taxes, see to it that you also have hard copies of such documents. If you are disputing a specific issue or if the IRS comes and audits you, you can readily present all related documents.
Moreover, new homeowners can also obtain deductions from property ownership. These deductions typically occur each year, while others can be held in forms of long-term savings. The most common yearly deductions are mortgage interest and property taxes. In general, the billing is a part of the monthly mortgage fee.
2Property Taxes And Mortgage Payments
It will be easier to keep up with your regular payments when you do provide the twenty percent down payment during the purchase. In case the payment is also included in the mortgage, your year-end statement will illustrate the total amount paid in taxes. On the other hand, if the payments were made directly, you could either opt to pay around December and April, which is semi-annually. It is also possible to pay both on their due dates.
If you need help in keeping track of due dates, use a record-keeping software. You can just set it so that you avoid late fees and other unnecessary charges or problems. It is also a good idea to itemize your property taxes, as these can be subtracted from state and federal taxes.
3The Importance of Financial Records
It is wise to keep photocopies of payments made, including tax bills and receipts, so that you'll have your own records. In case someone asks for evidence as regards payments made, you can quickly produce copies of what you paid and when it was paid. Even a canceled check is acceptable because it will contain useful details about what and when something was paid. Be aware that you can only use tax deductions during the year that particular payment was made. In general, your primary property's interest could also be tax deductible.
Always be on the lookout for details in your statement that show how much went to the principal and interest during the prior year. These often appear in the statement that you'll get at the current year's end. Also, you won't get an accurate deductible amount if you simply add your mortgage loan payments for twelve months.
4Knowing What's In Your Mortgage
The mortgage payment typically includes the principal and interest. The principal amount is classified as a non-deductible expense, while the interest could be, although not always. Again, keep canceled checks, such as those that you regularly send as payments to your mortgage company.
Generally, the IRS will honor the statements provided by your mortgage company as evidence of interest paid. Still, it's best to have those checks as a backup in case your mortgage company fails to record a payment. In case your payments are automatically deducted, have a copy of the statements that contain details regarding when and what was paid.
5Alternative Minimum Tax Eligibility
Check if you are eligible for Alternative Minimum Tax, which could apply to you especially if you have a substantial income. In such cases, you will be alerted by either your accountant or, if you use one, your tax preparation software. You will likely notice a loss on your deductions. As a homeowner who lives in his own property, you will have operating expenses; such costs are typically considered as non-deductible, except if you use your house as an office as well. In case you run a business from home, which is similar to an investment or lease out, then these expenses can be classified as deductibles.
If you're not sure about your status, talk to a reliable accountant, particularly if you are renting your house or part of it, since the tax code is a little complicated. Additionally, a certain percentage of the loan that you pay to obtain a mortgage, in case you do choose to refinance or buy, can also be deducted during the same year that the purchase was made.
6All About Your Home Loan
Through a loan, you can either purchase a house or have some money for the renovations that you need to do at your principal residence. This is the primary purpose of a home loan and, incidentally, the collateral that is often used to secure the mortgage is the property itself. It's possible that points will not exceed what's expected in your region or area.
Moreover, you should keep all documents regarding your loan and escrow whenever you buy or refinance since these could be tax deductible depending on the points. However, you should also remember that your accountant or financial consultant will also probably inform you that you will not be able to deduct the points in the same year, but you can spread the deductions during the entire term of your loan. Let's say that you will need to make 360 payments on your current loan; divide the points by 360 and deduct a total of twelve month's worth annually.
7What Is A Capital Gains Tax?
Once you decide to sell your house, it's more likely that you'll receive a sizeable profit from it, especially when you sell during a strong and stable real estate market. In this case, you will also pay the capital gains tax if there was an increase. Now, you're probably wondering, "How big is the gain that I can get?"
In case you are not aware of this, then you also would not know how much your taxes are. In determining the capital gains, the adjusted tax basis of a particular property and the sales price are computed, and then the cost to finalize the sale is then subtracted. This issue, especially the adjusted tax basis can be very confusing.
It is important to pay your property taxes regularly and on time, and now you know that there are some considerations to make concerning this. It is your duty as a homeowner to ensure that you are paying your dues on time so that you won't lose your home. Then, when it's time for you to sell, you will be responsible for paying the capital gains tax to avoid future problems.
Speak to a financial expert or an accountant in case you're having a hard time making sense of all these tax issues. These people will charge a fee, but it will all be worth it if it means that you won't lose your home or face other tax-related legal problems. Best of luck to you!