Get Ready For Tax Season: Advice for Homeowners

It’s that time of the year again – tax season! Preparing for taxes can be stressful for homeowners, especially with all the deductions and credits available. However, gathering the correct information and understanding the process can significantly impact your tax bill. To help relieve some of the stress, this article will provide practical advice for homeowners to get ready for tax season, so you can feel confident and well-prepared when it comes time to file your taxes!

What Makes Tax Season So Stressful?

Tax season is one of the most dreaded times of the year for many, eliciting a sense of stress and anxiety. Between gathering all your paperwork and crunching numbers, taxes can be overwhelming. It doesn’t help that tax codes are always shifting and updating by the day, so following the latest rules can seem like an impossible task for individuals attempting to file on their own.

Even those who hire accountants can feel stressed by repeatedly answering questions over long periods or rushing to collate important documents before filing deadlines. Additionally, taxpayers often worry they might have done something wrong or failed to account for key deductions. Torn between hoping you did it right but dreading a hefty fine should you make a mistake – it’s no wonder tax season is considered one of the most unreliable and stressful times of the year.

Advice For Homeowners To Relieve Tax Season Stress

While there is no way to get out of doing your taxes, there are steps you can take to make the process smoother and less overwhelming. For homeowners, this means doing some different things from renters or those living with family. Here is a helpful guide to get you prepared for tax season:

Understanding Tax Deductions For Homeowners

As a homeowner, you may be eligible for several tax deductions, reducing your taxable income and lowering your tax bill. The most common tax deductions for homeowners include mortgage interest, property taxes, and points paid to obtain a mortgage. However, it’s essential to understand that to take advantage of these deductions; you must itemize your deductions on your tax return.

This means that instead of taking the standard deduction, you must add all the deductible expenses you incurred during the year and claim that amount on your tax return. To determine if it’s more beneficial to itemize your deductions, you should compare the total amount of deductions you’re eligible for with the standard deduction.

Keeping Accurate Records

To get the full benefits of all the deductions and credits available to homeowners, it’s crucial to keep accurate records throughout the year. This includes keeping track of any home improvement expenses, receipts for property taxes, mortgage interest statements, and any other tax-related documents. Keeping accurate records also helps ensure you have all the necessary information when it’s time to file your taxes.

For example, you’ll need your mortgage interest statements to calculate the amount of mortgage interest you can deduct. You should also keep receipts for home improvement expenses if you need to prove your deductions to the IRS. It’s a good idea to set up a system for organizing and storing these documents so that you can easily find them when it’s time to file your taxes.

Understanding Capital Gains Exclusion

If you sell your home, you may have to pay capital gains tax on the profit you make from the sale. However, a special tax rule called the “capital gains exclusion” allows you to exclude a portion of the profit from your taxable income. The capital gains exclusion applies to the sale of a primary residence you’ve lived in for at least two of the five years before the sale.

For the 2022 tax year, the exclusion amount is $250,000 for single filers and $500,000 for married couples filing jointly. If you sell your home for a profit less than or equal to these amounts, you won’t have to pay capital gains tax on the sale.

Tax Credits Available For Homeowners

In addition to tax deductions, homeowners may also be eligible for tax credits. Tax credits are a dollar-for-dollar reduction of your tax liability, which means that a tax credit will reduce your tax bill by the exact amount of the credit. One of the most common tax credits for homeowners is the energy-efficient home improvement credit. This credit allows you to claim a credit for certain energy-efficient improvements to your home, such as installing insulation or energy-efficient windows.

There are also credits available for installing renewable energy systems, such as solar panels or wind turbines. You should review the IRS’s guidelines and consult a tax professional to determine if you’re eligible for any of these credits.

Calculating Home Office Deduction

For those who use a portion of their home as a regular and exclusive place of business, you may be eligible for the home office deduction. This deduction allows you to deduct a portion of your mortgage interest, property taxes, insurance, utilities, and other expenses related to the portion of your home used for business. To claim the home office deduction, you must meet the “regular and exclusive use” test, which means you must use the space solely for business purposes and not for personal use.

Furthermore, you must have a separate room or area in your home that you use exclusively for business. You can calculate the deduction by determining the percentage of your home used for business and applying that percentage to your eligible expenses.

Charitable Contributions For Homeowners

Another way homeowners can reduce their tax burden is by making charitable contributions. These contributions can come in the form of money or property, such as real estate or personal property. When you make a charitable contribution, you can claim a tax deduction for the property’s fair market value or cash donated. However, it’s essential to keep in mind that there are limits to the amount of charitable contributions you can deduct each year.

For tax years 2021 and 2022, the limit is 60% of your adjusted gross income (AGI) for cash contributions and 30% of AGI for property contributions. Additionally, you must have proper documentation of your contributions, such as a receipt or other written record, to claim a deduction.

Filing Your Taxes

Once you have all the necessary information and documents, filing your taxes is time. You can use tax preparation software or online services if you’re comfortable preparing your taxes. Alternatively, you can work with a tax professional to help you prepare and file your taxes. It’s important to review your tax return carefully before filing it to ensure all the information is accurate and complete.

Make certain to file your taxes promptly, as penalties and interest will be levied if you don’t. The usual due date for individual tax returns is the fifteenth of April yearly; however, an extension can be applied to extend the deadline until the fifteenth of October if needed.

Simplify Tax Season By Following This Advice For Homeowners!

As a homeowner, there are many tax breaks and deductions available to you that can help reduce your overall tax burden. In addition to the deductions discussed above, other possible deductions or credits may be available depending on your situation. It’s important to review your options carefully and consult a tax professional if needed. Following this advice for homeowners and understanding the tax laws can help reduce the stress this tax season!