a blog update to Verify with Your Lender
Isn’t home ownership an amazing thing? You’ve tackled the house hunt and are ready to take on the responsibility of changing out the light fixtures,planting that much-wanted herb garden, and repainting your spiffy new bathroom.
But the un-fun stuff still has to be handled—like unexpected home repairs, utilities, trash pick up, homeowners insurance, and…
...mortgage payments, and property taxes.
Dealing with lenders isn’t all that great, but if you have a mortgage with an escrow account, the headache of paying yearly property taxes and insurance is your lender’s instead of yours.
See, your monthly payments include 1/12 of the annual amount for your yearly taxes. According to Mallory Malesky at SFGate, “Most lenders like to keep some additional funds in the account to act as a safety-net or cushion in case of an unexpected increase in a bill. The lender is allowed, by law, to collect an additional two months worth of payments for this purpose.” Since your escrow payments are estimates more than anything, owing more (or less!) than the projected yearly amount is definitely something to keep in mind. Having that extra cushion will help keep you from paying out big time later.
And the IRS requires that your lender actually pays your property taxes on time—meaning you can actually deduct your property taxes on your tax return!
Have you paid, or will you pay, the 2019 property taxes this year so you’re eligible to deduct them on your 2019 income tax return?
But what happens if your lender doesn’t pay your property taxes on time? Does that leave you up a creek without a paddle? Thankfully, no! File a notice of error with your name, account info, and details of the type of error. The Real Estate Settlement Procedures Act (RESPA) requires that your lender file with your taxing authority on time by year end. Be sure to verify the last mortgage payment of the year for those super-awesome year-end tax deductions.
Keep in mind, however, if your mortgage is delinquent, your lender does NOT have to pay your property taxes. Most generally will...but will also demand to be paid in full.
Regardless, your property taxes aren’t the only item savvy homeowners can deduct from their taxes.
So How to Maximize Your Year End?
First tip: Take a look at a tax benefits calculator like this one and figure out what your expenses, appreciations, depreciations, and overall deductions are. Much like renting out a home, factoring in repair costs, as well as current expenses and capital expenses, makes a difference. If in doubt, always consult the help of a tax professional.
Second tip: Make a list of the items you can’t deduct. Sometimes those expenses end up on the same receipts or in the same notebooks as other viable expenses/write-offs. For example, earnest money, utilities, and HOA fees are not deductible.
Third tip: Have a home office? Then you can definitely get a deduction here, too! Well, part of your office expenses, anyway. Determining how much you can deduct depends on how much of your home is dedicated to your home office, how often your home office is actually used (and used for that purpose), and state laws. TurboTax has a helpful equation for determining business percentage:
Your home office business deductions are based on the percentage of your home used for the business or a simplified square footage calculation.
Percentage of your home method:
The most exact way to figure this proportion is to measure the square footage devoted to your home office and find what percentage it is of the total area of your home. If the office measures 150 square feet, for example, and the total area of the house is 1,200 square feet, your business percentage would be 12.5% (150 ÷ 1,200).
Fourth tip: A certain portion of interest on your mortgage debt is deductible. Bill Bischoff at MarketWatch advises, “For 2018-2025, you can only deduct interest on home equity debt that is used to acquire or improve your residence, subject to the overall $750,000/$375,000 limit.”
All legal Florida residents are eligible for a Homestead Exemption on their homes, condominiums, co-op apartments and certain mobile home lots. The exemption removes $25,000 off the assessed value of an owner-occupied residence and could provide up to another $25,000 additional exemption off assessed value over $50,000. (This additional exemption does not apply to school millage.) Not only does the homestead exemption lower the value on which you pay taxes, it also triggers the 'Save Our Homes' benefit which limits future annual increases in assessed value to 3% or less. The sale of the property, changes in ownership or changes to the property can cause the exemption and benefit to be removed or altered. (When a home is sold, the assessed value increases to market value for the next tax roll.)
You are entitled to a Homestead Exemption if, as of January 1, you have made the property your permanent home or the permanent home of a person who is legally or naturally dependent on you. To be eligible for a homestead exemption, you must own and occupy your home as your permanent residence on January 1. The deadline to timely file for a homestead exemption is March 1. Late filing is permitted through early September. (The deadline for late filing is set by Florida law and falls on the 25th day following the mailing of the Notices of Proposed Property Taxes which occurs in mid-August.)
Sixth tip *Florida Exclusive!*: Homestead exemptions aren’t the only kind available. Disability exemptions, veterans exemptions, senior citizen exemptions, and widow(er) exemptions are all potential exemptions that could help lessen the property tax blow to your bank book.
Seventh tip: If your property is a rental and you’ve been properly maintaining the habitability, then you could very likely write some of those expenses off as well. (The joys of being a landlord.) Here’s a great resource from RocketLawyer on potential maintenance/repair deductions. As always, if in doubt, contact a tax professional.
Wrapping It All Up
Have your facts before you verify with your lender. December/January will be busy but if you take the steps to have your information ready in advance, the talk with your lender will be a snap! Get the most of home ownership and worry less.
Not sure what questions to ask or how to handle things? We're experts at all things homes.
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