It’s upon us: that dreaded time of year when we have to schlep through mountains of financial paperwork and rack our brains to remember major life events, minor purchases, and everything in between. Yes, tax season is officially here. Whether you purchased an Atlanta, GA, home for sale or made home improvements last year, the list of things to consider and documents to track down could be longer this year than in the recent past. To help make things easier, we’ve compiled a list of ways you can prepare before seeing your tax accountant (or tackling your taxes yourself) to curb those headaches before they happen.
Task 1: Gather all appropriate paperwork related to buying or owning your home
1098 Mortgage Interest Statement. If you paid interest on your mortgage, mortgage discount points, real estate taxes from an escrow account, and/or private mortgage insurance (PMI), you’ll need to have your 1098 Mortgage Interest Statement ready for tax time.
Homeowners who paid more than $600 in interest during 2015 will receive a 1098 Mortgage Interest Statement from their lender outlining the exact amount paid. The full amount is tax-deductible if it’s less than $1 million. If you paid mortgage discount points to secure a loan or receive better loan terms, this will also be on your 1098 form. Be aware, you may be required to spread out the deduction over the life of your mortgage instead of taking the entire deduction in the year you paid the interest.
Another item your lender may include on your 1098 is the amount of real estate taxes paid, but this will appear only if the payment was made from an escrow account. In addition, if you paid PMI, that will be noted in box 4 of this form. Your PMI is tax-deductible, thanks to a recent tax break extension, but only if you don’t exceed certain income thresholds.
County tax statement. If you paid real estate taxes directly (and not through an escrow account set up by your lender), then you will need documentation provided by the county. Real estate taxes are deducted in the year paid, so if you prepaid for 2016 in calendar year 2015, then that amount can be deducted as well.
Form 1099-R. If you used money from your IRA to buy your first home, you’re in luck on tax day. While most IRA distributions taken before age 59.5 are subject to taxes and a 10% penalty, a distribution of up to $10,000 used to purchase a first home is exempt from the tax penalty. To prove the money was used for this purpose, you will need to bring a 1099-R form from your IRA custodian, stating the distribution code as “2” to show there is an exception.
Task 2: Gather all paperwork related to home improvements you made
1098 Mortgage Interest Statement. If you took out a personal home equity loan to pay for home improvements, the interest is tax-deductible up to the $1 million cap. This amount will also be included in your 1098 Mortgage Interest Statement. While your tax accountant might not need to see receipts proving the money was spent on home improvements, you should keep these organized and on hand in case of an audit.
Documentation on upgrades, including amounts paid. If you made energy-efficient upgrades to your home in 2015, you’ll need to be able to prove it. At least through 2016, you can use the Residential Energy Efficient Property Credit to cover up to 30% of the cost of qualified energy-efficient equipment, such as solar water heaters, wind turbines, and solar panels. However, if you made “qualified energy efficiency improvements” instead, such as adding insulation and improving exterior doors and windows, you could qualify for the Nonbusiness Energy Property Credit. This could give you a 10% tax credit, but restrictions do apply.
Task 3: Determine whether you made any deductible donations of household goods
Receipts for donated items. If you made charitable donations of home goods throughout the year to an organization like Goodwill or Habitat for Humanity, you will need to gather all receipts/written acknowledgements of the items you donated. These should be provided by the organization that received your items. To calculate your deductible amounts, consider the fair market value of the items you donated.
Task 4: Calculate your home office deduction
Add up the square footage of your home office. If you operate a business out of your home and have a dedicated space for these operations, you qualify for the home office deduction. New, simplified reporting allows you to take $5 per square foot, up to 300 square feet or $1,500, but you’ll need to calculate the total square footage of the space that is dedicated solely to business operations.