Tax Tips for NJ Real Estate Homeowners

5 great tips and more money-saving information for NJ real estate homeowners

 

One of the greatest benefits of owning a home compared to renting is the allowable tax deductions. NJ real estate homeowners who itemize their taxes are eligible to deduct 100% of their mortgage interest and property taxes from their income tax returns. An example of this is a homeowner in the 26% tax bracket can finance about a third of their borrowing costs or more, making their home more affordable or allowing them to buy a larger home than they would have otherwise been able to. In addition, a large amount of closing costs are tax deductible and hundreds of thousands of dollars of any capital gains are exempt from income taxes.

At tax time, it is imperative to know what you are entitled to so it can be claimed. Below are 5 essential things to know regarding NJ real estate-related income tax tips:

Plan Ahead Strategically

When taking a home office deduction, you want to be organized and know what you are entitled to. According to the Small Business Administration, the average home office deduction is $3,686. In order to figure out how much you will save on your taxes, you will want to multiply your total number by your tax bracket. Be aware that the space you designate as your home office cannot be exempted from capital gains tax when you sell your home later. You should speak to your accountant for further information and clarification on NJ real estate home office deductions.

Itemize Your Returns

Many NJ real estate homeowners take standard deductions at tax time; and if their mortgage, property taxes, and income qualify, this standard deduction may outweigh their homeowners' deductions. However, the best advice in this situation is to obtain forms from your mortgage company and answer the questions on tax software. This way, the calculations are automatically done to determine whether itemizing or taking the standard deduction will result in the lowest tax bill, or the highest tax refund, for the homeowner.

Know Your NJ Real Estate Tax Consequences

Homeowners are filing tax appeals on the basis of the last few years' decline in their home's value. Also, those who have equity have sought to refinance their 7% home loans into the 4% to 5% rates of the last few months. While these strategies offer some of the biggest household savings, homeowners need to remember that NJ real estate property taxes and mortgage interest, the very costs they are minimizing, are also the basis for the major tax benefits of being a homeowner. As a result, income tax deductions will decrease along with taxes and interest.

Some Tax Relief Will End in 2012

While the long-term NJ real estate housing outlook is beginning to improve, this year is expected to be the peak year for foreclosures during this market cycle. At the current time, banks are taking many months, or even years, to work out mortgages for homeowners seeking short sales, foreclosures, and loan modifications. If you foresee any of these outcomes in your future, you should immediately seek closure on your distressed home and loan while you do not have income taxes (with this relief ending in 2012) to add as the insult on top of your significant housing injury.

Do Not Forget About Closing Costs

If you bought or refinanced your home in 2010, you may be so wrapped up in your mortgage interest and property tax deductions that it is easy to forget all about closing costs. Any origination fees or discount points that were paid to your mortgage lender at closing are tax deductible on your 2010 return, regardless of whether the seller paid your closing costs.

 

The NJ real estate market is changing rapidly and expanding into new avenues almost daily. Sometimes it can be very difficult to find the answers you need on a specific topic or issue. In times like these, you need a real estate professional who will provide valuable information and trustworthy advice. For more information about NJ real estate, call us today or click here to be connected with one of our top real estate specialists.