Homeowners: review these house-related deductions and programs
The summer months are a popular time to buy or sell a house. New homeowners should put reviewing the tax deductions, programs and housing allowances they may be eligible for on their move in to-do list.
Deductible house-related expenses
Most home buyers take out a mortgage loan to buy their home and then make monthly payments to the mortgage holder. This payment may include several costs of owning a home. The costs the homeowner can deduct are:
- state and local real estate taxes, subject to the $10,000 limit
- home mortgage interest, within the allowed limits
Taxpayers must itemize their deductions to deduct home ownership expenses.
Non-deductible payments and expenses
Homeowners can't deduct any of the following items:
- Insurance including fire and comprehensive coverage and title insurance
- The amount applied to reduce the principal of the mortgage
- Wages paid to domestic help
- Depreciation
- The cost of utilities, such as gas, electricity or water
- Most settlement or closing costs
- Forfeited deposits, down payments or earnest money
- Internet or Wi-Fi system or service
- Homeowners' association fees, condominium association fees or common charges
- Home repairs
Mortgage interest credit
The mortgage interest credit helps people with lower income afford home ownership. Those who qualify can claim the credit each year for part of the home mortgage interest paid. A homeowner may be eligible for the credit if they were issued a qualified Mortgage Credit Certificate from their state or local government. An MCC is issued only for a new mortgage for the purchase of a main home.
Homeowners Assistance Fund
The Homeowners Assistance Fund program provides financial assistance to eligible homeowners for paying certain expenses related to their principal residence to prevent mortgage delinquencies, defaults, foreclosures, loss of utilities or home energy services and also displacements of homeowners experiencing financial hardship after Jan. 21, 2020.
Minister's or military housing allowance
Ministers and members of the uniformed services who receive a nontaxable housing allowance can still deduct their real estate taxes and home mortgage interest. They don't have to reduce their deductions based on the allowance.
Things for extension filers to keep in mind as they prepare to file
Many people requested an extension to file their tax return after the usual April deadline. These filers have until Oct. 16, 2023, to complete and file their tax return. The IRS suggests that those who already have the forms and information they need file now – there's no advantage to waiting until the deadline and filing now saves the worry that they may miss the deadline.
There are a few things extension filers should know as they get ready to file.
File by the deadline
Extension filers should file and pay any balance due by Monday, Oct.16, 2023.
Many taxpayers can use IRS Free File
Many taxpayers can e-file their tax return for free through IRS Free File. The program is available on IRS.gov through October 16. E-filing is easy and safe, and it's the most accurate way for people to file their taxes. Filing electronically can also help taxpayers determine their eligibility for many valuable tax credits.
Taxpayers get their refund faster by choosing direct deposit
Anyone due a refund should request direct deposit to get their tax refund electronically deposited into their financial account.
IRS offers payment options for taxpayers with a balance due
Those who owe taxes and can't pay their balance in full should pay as much as they can to reduce interest and penalties for late payment. The IRS has options for people who can't pay their taxes, including applying for a payment plan on IRS.gov. Taxpayers can view payment options or check their account balance online.
Extension filers should request missing or incorrect documents directly from employer or other payers
If a taxpayer is waiting to file because they're missing a form like a W-2 or 1099, they should contact their employer, payer or issuing agency and request a copy of the missing or corrected document. If they still can't get the forms, they may need to use Form 4852 as a substitute.
Taxpayers who didn't file in April and didn't request an extension should still file as soon as possible
Anyone who did not request an extension by this year's April 18 deadline should file and pay as soon as possible. This will stop additional interest and penalties from adding up. There is no penalty for filing a late return for people who are due a refund
Some members of the military have different deadlines
Special deadline exceptions may apply for certain military service members and eligible support personnel in combat zones. The Department of Defense's MilTax online tax software is available to service members and their families, regardless of income.
Taxpayers in disaster areas may have more time to file
Taxpayers living in an area impacted by a recent natural disaster may have an automatic extension of time to make various tax payments. Visit Tax Relief in Disaster Situations on IRS.gov for more information.
Tax to-dos for newlyweds to keep in mind
Anyone saying "I do" this summer should review a few tax-related items after the wedding. Big life changes, including a change in marital status, often have tax implications. Here are a few things couples should think about after they tie the knot.
Name and address changes
People who change their name after marriage should report it to the Social Security Administration as soon as possible. The name on a person's tax return must match what is on file at the SSA. If it doesn't, it could delay any tax refund. To update information, taxpayers should file Form SS-5, Application for a Social Security Card. The form is available on SSA.gov, by calling 800-772-1213 or at a local SSA office.
If marriage means a change of address, the IRS and U.S. Postal Service need to know. To do that, people should send the IRS Form 8822, Change of Address. Taxpayers should also notify the postal service to forward their mail by going online at USPS.com or by visiting their local post office.
Double-check withholding
After getting married, couples should consider changing their withholding. Newly married couples must give their employers a new Form W-4, Employee's Withholding Certificate within 10 days. If both spouses work, they may move into a higher tax bracket or be affected by the additional Medicare tax. They can use the Tax Withholding Estimator on IRS.gov to help complete a new Form W-4. Taxpayers should review Publication 505, Tax Withholding and Estimated Tax for more information.
Filing status
Married people can choose to file their federal income taxes jointly or separately each year. For most couples, filing jointly makes the most sense, but each couple should review their own situation. If a couple is married as of December 31, the law says they're married for the whole year for tax purposes.
Tax tips for new parents
Kids are expensive. Whether someone just brought a bundle of joy home from the hospital, adopted a teen from foster care, or is raising their grandchild. There are several tax breaks that can help.
Here are some tax tips for new parents
- Get the child a Social Security or Individual Tax Identification number
To claim parental tax breaks, the taxpayer must have their child or dependent's Social Security number, Adoption Tax Identification Number or Individual Tax Identification number. Confirming a child's birth is the only way the IRS can verify that the parent is eligible for the credits and deductions they claim on their tax return.
- Check withholding
A new family member might make taxpayers eligible for new credits and deductions, which can greatly change their tax liability. They can use the IRS Withholding Estimator to check their withholding. Taxpayers should provide their employer with an updated Form W-4, Employee's Withholding Certificate, if they want to change how much tax is withheld from their paycheck.
Check eligibility for these tax credits and deductions
- Child Tax Credit
Taxpayers who claim at least one child as their dependent on their tax return may be eligible for the Child Tax Credit. For help figuring out if a child qualifies for this credit, taxpayers can check Does My Child/Dependent Qualify for the Child Tax Credit or the Credit for Other Dependents?
- Child and Dependent Care Credit
If taxpayers paid someone to take care of their children or another member of their household while they work, they may qualify for the Child and Dependent Care Credit regardless of their income. Taxpayers who pay for daycare expenses may be eligible to claim up to 35% of their daycare expenses with certain limits.
- Adoption Tax Credit
This credit lets families who are in the adoption process during the tax-year claim eligible adoption expenses for each eligible child. Taxpayers can apply the credit to international, domestic, private and public foster care adoptions.
- Earned Income Tax Credit
The Earned Income Tax Credit helps low- to moderate-income families get a tax break. If they qualify, taxpayers can use the credit to reduce the taxes they owe – and maybe increase their tax refund.
- Credit for Other Dependents
Taxpayers with dependents who don't qualify for the Child Tax Credit may be able to claim the Credit for Other Dependents. Taxpayers can use the Does My Child/Dependent Qualify for the Child Tax Credit or the Credit for Other Dependents tool on IRS.gov to help determine if they are eligible to claim the credit. They can claim this credit in addition to the Child and Dependent Care Credit and the Earned Income Credit.
Tax planning doesn’t stop after a taxpayer files a tax return
Just because a taxpayer filed a tax return doesn't mean they should forget taxes until next year. What a taxpayer does now may affect the tax they owe or the refund they may receive next year.
Here are some simple year-round tax planning pointers for all taxpayers.
Organize tax records. Create a system that keeps all important information together. Taxpayers can use a software program for electronic recordkeeping or store paper documents in clearly labeled folders. They should add tax records to their files as they receive them. Organized records will make tax return preparation easier and may help taxpayers discover overlooked deductions or credits.
Identify filing status. A taxpayer's filing status is used to determine their filing requirements, standard deduction, eligibility for certain credits and the correct amount of tax they should pay. If more than one filing status applies to a taxpayer, they can get help choosing the best one for their tax situation with Interactive Tax Assistant, What Is My Filing Status. Changes in family life — marriage, divorce, birth and death — may affect a person's tax situation, including filing status and eligibility for certain tax credits and deductions.
Understand adjusted gross income (AGI). AGI and tax rate are important factors in figuring taxes. AGI is the taxpayer's income from all sources minus any adjustments and deductions. Generally, the higher a taxpayer's AGI, the higher their tax rate and the more tax they pay. Tax planning can include making changes during the year that lower a taxpayer's AGI.
Check withholding. Since federal taxes operate on a pay-as-you-go basis, taxpayers need to pay most of their tax as they earn income. Taxpayers should check that they're withholding enough from their pay to cover their taxes owed especially if their personal or financial situations change during the year. To check withholding, taxpayers can use the IRS Withholding Estimator. If they want to change their tax withholding, taxpayers should provide their employer with an updated Form W-4. Changing withholding and having more withheld may lower their AGI and affect their tax bill or expected refund.
Make address and name changes. Notify the United States Postal Service, employers and the IRS of any address change. To officially change a mailing address with the IRS, taxpayers must compete Form 8822, Change of Address, and mail it to the correct address for their area. For detailed instructions, see page 2 of the form. Report any name change to the Social Security Administration. Making these changes as soon as possible will help make filing their tax return easier.
Save for retirement. Saving for retirement can also lower a taxpayer's AGI. Contributing money to a retirement plan at work and to a traditional IRA also reduces taxable income.