No one wants to talk tax when holiday festivities are in full swing. After all, this year's taxes won't matter until next April. Right? Well, maybe for some people, but if you're serious about buying or selling that home in Washington, DC, or San Francisco, CA, you may want to take a moment to step away from the eggnog and tune in to the tax breaks you could take advantage of before the end of the year.
Each year, many tax breaks for homeowners (both buyers and sellers) are set to expire. Congress must pass extensions for certain credits to stay available into the following years. And at this point, it looks as if many breaks for homeowners could be reaching an end.
If you own a home — or are looking to buy a home — you may need to act now. It could be your last chance to claim qualifying deductions and write-offs. Here's what could go away once 2017 rolls around.
1. No more mortgage debt forgiveness
Typically, when a mortgage lender writes off any part of, or all of, a forgiven debt, the amount that is forgiven is passed back to the borrower as taxable for federal income tax purposes. The rule applies to all debt, including home mortgages. However, this rule was changed by Congress to help struggling homeowners during the Great Recession through the Mortgage Forgiveness Debt Relief Act. Under the rule, qualifying homeowners who either lost their homes to foreclosure or qualified for some kind of repayment adjustment didn't have forgiven debt taxed as income. After being renewed several times in the past, the exception is due to expire at the end of 2016.
There is some good news if you're in the process of discharging mortgage debt: You still qualify for the exception and won't be taxed on the debt if your written agreement with a lender to discharge the debt was created this year. (This means if your debt is actually discharged in 2017, but you signed an agreement in 2016, you'll qualify for the exemption.)
2. Write off mortgage insurance premiums while you can
In a tough market, lenders are a bit more cautious. Buyers who financed homes in the last few years found that many lenders required private mortgage insurance (PMI) to protect the lender in the event of a default. Being able to write off PMI as a deduction is something that changes frequently. In years past, it wasn't an option. Then in 2014, Congress passed a bill that allowed some homeowners who qualified and itemized to claim a tax deduction for the cost of paying PMI for their homes. This even extended to their vacation homes.
But you can say goodbye to this deduction once again once we enter January 2017. The deduction expires at the end of 2016.
3. Get your credit for going green
Just bought your first or second home? If you invest in energy-efficient upgrades, you could write off some of the cost. Homeowners who installed electricity-generating systems in 2015 or 2016 can claim 30% of the cost — and there's no cap on that dollar amount.
Some other energy-efficient home improvements, including things like qualifying insulation, heating and air-conditioning equipment, roofing, doors, windows, and biomass stoves, can get you a tax break too. You can claim up to 10% of the cost of the Earth-friendly improvements you made to your home, up to $500.
But both these breaks expire at the end of the year, so act now if you want to take advantage.
How have you taken advantage of 2016 tax breaks for homebuyers? Share your tips in the comments below!
Guide to commonly-used US tax forms
Guide to commonly-used US tax forms
The 1040 family of tax forms is for federal income tax and is absolutely essential for all.
The 1040EZ form is the simplest version and is typically filed by those who:
Have no dependents
Are younger than 65
Earned less than $100,000
Don’t plan to itemize deductions
Form 1040A is more comprehensive than 1040EZ, but simpler than the regular 1040. It's beneficial for those who earn less than $100,000 and don’t have self-employment income -- but who want to make adjustments to their taxable income, such as child tax credits or deductions for student-loan interest. Note that it doesn't allow for itemized deductions.
Form 1040 is filled out by those who make $100,000 or more, have self-employment income or plan to itemize deductions.
The W-2 is completed by employers document each employee's earnings for the calendar year. You will want to take a look at this tax form for important information you'll need to fill out your 1040, 1040A or 1040EZ.
The 1098 form is filled out by those who:
paid interest on a mortgage
paid interest on a student loan
paid college tuition
donated a motor vehicle to charity
The 1099 series is reports all income that isn’t salary, wages or tips, and must be reported on both the state and federal level.
1099-DIV reports dividends, distributions, capital gains and federal income tax withheld from investment accounts, including mutual fund accounts.
1099-INT trakcs interest income earned on investments.
1099-OID (Original Issue Discount) is provided if you received more than the stated redemption price on maturing bonds.
1099-MISC documents self-employment earnings, as well as miscellaneous income such as royalties, commissions or rents. It covers all non-employee income that is not derived from investments.
If you receive a refund that you're unable to pay in full, you can request a monthly installment plan using Form 9465.
Don't forget to notify the IRS if you move! Use Form 8822 to change your address with the Internal Revenue Service. Otherwise, notices, refunds paid with a paper check and other correspondence relating to your personal, gift and estate taxes will be sent to your former address.
Anyone who has been employed by a company has completed a Form W-9. The W-9 is used by employers for payroll purposes -- and the information on the W-9 is used to prepare employee paychecks during the year and W-2 forms at the end of the year.
The W-4 is an IRS form completed for employers know how much money to withhold from your paycheck for federal taxes. Accurately completing your W-4 can both ensure you don't have a big balance due at tax time and also prevent you from overpaying your taxes.
Anyone whose field of vision falls at or below 20 degrees, who wears corrective glasses but whose vision is 20/200 or less in his best eye, or who has no eyesight at all, meets the legal definition of being blind and is eligible for certain tax deductions.
Itemized tax deductions can help save you even more money during tax season if your deductions exceed the standard amount. Learn about itemizing your tax deductions with help from TurboTax in this video on annual tax filing.
There are a number of eligibility requirements you must satisfy before potentially receiving a child or dependent care credit, so it's a good idea to familiarize yourself with the rules before preparing Form 2441.