3 Common Home Tax Concerns

From incentives to deductions, taxes are complicated and can be confusing even for the seasoned property owner. Understanding the ins and outs of some common property tax concerns can help save you money and put your mind at ease. Here are 3 very common tax topics relating to real estate:

1. Natural Disaster Relief

If your home is affected by a natural disaster, your damage costs will be deductible from both state and federal income taxes. Disasters include fires, floods, earthquakes, hurricanes and more. Homeowners can deduct their losses by filing an amended return for the tax year before the event happened. This helps to minimize the wait for refund money that can be used to make repairs or pay for living expenses.

2. Historic Rehabilitation

If your home is a certified historic home, then you may be able to receive a break on your taxes. Many states offer tax incentives, reductions and abatement programs for owners of residential historic homes. These programs are described on the National Trust’s website, which also offers resources and tips for owners of historic homes. Visit the site at http://www.preservationnation.org.

3. Home Improvement Deductions

Many sellers ask if they can deduct the cost of improvements made to their homes from their taxes. The answer is not black and white.

Yes, you can deduct improvements, but only after the home has been sold. This is because improvements add to the basis of your home. Because your basis is subtracted from your selling price to figure out what your home sale gain is, these tax deductions can only be made after your home is sold and your basis is defined.

The IRS has specific qualifications for what counts as a taxable “improvement.” These are renovations that add to your home’s value and extend its “useful life. A taxable improvement examples might include an extra bathroom or updating plumbing, heating or electrical systems.