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9 easy mistakes homeowners make on their taxes

Don’t rouse the IRS or pay more taxes than necessary — know the score on each home tax deduction and credit.

As you calculate your tax returns, be careful not to commit any of these nine home-related tax mistakes, which tax pros say are especially common and can cost you money or draw the IRS to your doorstep.

1. Deducting the wrong year for property taxes
You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind — that is, you’re not billed for 2013 property taxes until 2014. But that’s irrelevant to the feds.

Enter on your federal forms whatever amount you actually paid in that tax year, no matter what the date is on your tax bill. Dave Hampton, CPA, a tax department manager at the Cincinnati accounting firm of Burke & Schindler, has seen homeowners confuse payments for different years and claim the incorrect amount.

2. Confusing escrow amount for actual taxes paid

If your lender escrows funds to pay your property taxes, don’t just deduct the amount escrowed. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. Your lender will adjust the amount every year or so to realign the two.

For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200 or the amount of property taxes noted on the Form 1098 that your lender sends. If you don’t receive Form 1098, contact the agency that collects property tax to find out how much you paid.

3. Deducting points paid to refinance

Deduct points you paid your lender to secure your mortgage in full for the year you bought your home. However, when you refinance, you must deduct points over the life of your new loan.

For example, if you paid $2,000 in points to refinance into a 15-year mortgage, your tax deduction is $2,000 divided by 15 years, or $133 per year.

4. Misjudging the home office tax deduction

The deduction is complicated, often doesn’t amount to much of a deduction, has to be recaptured if you turn a profit when you sell your home, and can pique the IRS’s interest in your return.

But there’s good news. There’s a new simplified home office deduction option if you don’t want to claim actual costs. If you’re eligible, you can deduct $5 per square foot up to 300 feet of office space, or up to $1,500 per year.

5. Failing to repay the first-time homebuyer tax credit

If you used the original homebuyer tax credit in 2008, you must repay 1/15th of the credit over 15 years.

If you used the tax credit in 2009 or 2010 and then within 36 months you sold your house or stopped using it as your primary residence, you also have to pay back the credit.

The IRS has a tool you can use to help figure out what you owe.

6. Failing to track home-related expenses

If the IRS comes a-knockin’, don’t be scrambling to compile your records. File or scan and store home office and home improvement expense receipts and other home-related documents as you go.

7. Forgetting to keep track of capital gains

If you sold your main home last year, don’t forget to pay capital gains taxes on any profit. You can typically exclude $250,000 of any profits from taxes (or $500,000 if you’re married filing jointly).

So if your cost basis for your home is $100,000 (what you paid for it plus any improvements) and you sold it for $400,000, your capital gains are $300,000. If you're single, you owe taxes on $50,000 of gains.

However, there are minimum time limits for holding property to take advantage of the exclusions, and other details. Consult IRS Publication 523. And high-income earners could get hit with an additional tax.

8. Filing incorrectly for energy tax credits

If you made any eligible improvements in 2014, such as installing energy-efficient windows and doors, you may be able to take a 10% tax credit (up to $500; with some systems your cap is even lower than $500). But keep in mind, it's a lifetime credit. If you claimed the credit in any recent years, you're done.

Installing a solar electric, solar water heater, geothermal, or small wind energy system can also make you eligible to take the Residential Energy Efficient Property Credit.

To claim the deduction, you have to use the complicated Form 5695, which can mean cross-checking with half a dozen other IRS forms. Read the instructions carefully.

9. Claiming too much for the mortgage interest tax deduction

Taxpayers are allowed to deduct mortgage interest on home acquisition debt up to $1 million, plus they can also deduct up to $100,000 in home equity debt.

3 reasons sellers shouldn't fear disclosures

There is no reason for sellers to stress about accurately and completely filling out disclosure statements

To disclose or not to disclose — that is the question. Actually, that isn’t the question. 

There should be no question in a seller’s mind whether to disclose an item or not. The short answer: If you’re aware of an issue, disclose it.

But first let’s talk about what exactly a disclosure is, and why, as a seller, it can be your best friend.

What is a disclosure?

A disclosure, in terms of real estate, is an opportunity for a seller to legally communicate any known property issues to prospective buyers.

Makes sense, right? A prospective buyer is ponying up some serious cash to buy a new home, and knowing its history and issues plays a key role in the selection process.

No pain, all gain?

Historically speaking, disclosing property flaws has been viewed by sellers as a pain point. (No surprise there.) Telling prospective buyers all the individual items “wrong” with a property goes against the natural inclination to display the property in the best light.

However, rather than view the disclosure process as an unpleasant task, sellers should eventually come to embrace the process.

Here are three reasons why there’s no need to be afraid to disclose your heart out.

1. Avoid potential legal action

Disclosure documents are a seller’s opportunity to tell all and paint an accurate picture of the property for sale. They also are a vehicle to protect yourself legally from any issues that may arise down the road. The more thorough the information, the better your protection.

Julie Sears, a recent seller in the Seattle market, experienced this firsthand. After accurately disclosing a leaky window in the living room and agreeing to a price reduction, she was surprised to be contacted by her broker after closing.

“The new homeowner was upset about water damage from a recent heavy thunderstorm and was seeking compensation for repairs,” says Sears. “Since I had disclosed the issue upfront, I was protected from any legal action regardless of the subsequent damage.”

This is a perfect example of the legal protection a seller can expect when accurately disclosing issues.

2. Give a sense of security

A disclosure statement that is barely filled in sends a message to the buyer — and it’s not reassuring: the seller is either uninformed about the property or unwilling to provide information.

Make it a point to sit down and thoroughly fill out your disclosure statement. Use this opportunity to convey your knowledge about the property to the buyer.

Accurate information provides the buyer a sense of security and demonstrates that you are upfront and thorough.

“Remember that no property is completely perfect. Revealing your property’s potential flaws will not drive away every potential buyer. The disclosure statement simply allows you to enter fair negotiations with buyers,” says FSSK, a Minneapolis law firm that specializes in real estate.

Disclosing flaws places them squarely on the table, allowing both parties to either work through them together or walk away. Whichever occurs, it gets you one step closer to finding a buyer and closing the deal.

3. Gain commitment

Closing a home purchase transaction is rife with small hurdles. Clearing each one is a victory as you proceed through escrow and nearer to the closing date.

Deliver your disclosure statement early in the process — preferably when you return a copy of the executed contract to the buyer. Overcoming this hurdle early places you that much closer to concluding a successful transaction.

If the buyer will not sign off on the disclosures and would like to terminate the agreement, it’s best to know this early so you both can move on.

Let’s be honest: all properties have flaws. But if you can embrace the process and work with prospective buyers to fairly negotiate, you’ll be able to close the deal more quickly and protect yourself from future headaches.

Both you and your karma will be glad you did.

6 Tips for Choosing the Best Offer for Your Home

Have a plan for reviewing purchase offers so you don't let the best slip through your fingers.

You’ve worked hard to get your home ready for sale and to price it properly. With any luck, offers will come quickly. You’ll need to review each carefully to determine its strengths and drawbacks and pick one to accept. Here’s a plan for evaluating offers.



1. Understand the process. 
All offers are negotiable, as your agent will tell you. When you receive an offer, you can accept it, reject it, or respond by asking that terms be modified, which is called making a counteroffer.

2. Set baselines.
Decide in advance what terms are most important to you. For instance, if price is most important, you may need to be flexible on your closing date. Or if you want certainty that the transaction won’t fall apart because the buyer can’t get a mortgage, require a pre-qualified or cash buyer.

3. Create an offer review process.
If you think your home will receive multiple offers, work with your agent to establish a time frame during which buyers must submit offers. That gives your agent time to market your home to as many potential buyers as possible, and you time to review all the offers you receive.

4. Don’t take offers personally.
Selling your home can be emotional. But it’s simply a business transaction, and you should treat it that way. If your agent tells you a buyer complained that your kitchen is horribly outdated, justifying a lowball offer, don’t be offended. Consider it a sign the buyer is interested and understand that those comments are a negotiating tactic. Negotiate in kind.

5. Review every term.
Carefully evaluate all the terms of each offer. Price is important, but so are other terms. Is the buyer asking for property or fixtures -- such as appliances, furniture, or window treatments -- to be included in the sale that you plan to take with you?

Is the amount of earnest money the buyer proposes to deposit toward the down payment sufficient? The lower the earnest money, the less painful it will be for the buyer to forfeit those funds by walking away from the purchase if problems arise.

Have the buyers attach a pre-qualification or pre-approval letter, which means they have already been approved for financing? Or does the offer include a financing or other contingency? If so, the buyers can walk away from the deal if they can't get a mortgage, and they'll take their earnest money back, too. Are you comfortable with that uncertainty?

Is the buyer asking you to make concessions, like covering some closing costs? Are you willing, and can you afford to do that? Does the buyer’s proposed closing date mesh with your timeline?

With each factor, ask yourself: Is this a deal breaker, or can I compromise to achieve my ultimate goal of closing the sale?

6. Be creative.
If you’ve received an unacceptable offer through your agent, ask questions to determine what’s most important to the buyer and see if you can meet that need. You may learn the buyer has to move quickly. That may allow you to stand firm on price but offer to close quickly. The key to successfully negotiating the sale is to remain flexible.

20 things that can raise the value of your home

When you're house-hunting it's important to be able to identify the things that increase the value of a home and those that actually detract. The seller and his agent, after all, will try to convince you that rail line that runs through the backyard is good because it provides extra green space.  

Here are 10 features that can add value to your home:

1. An updated kitchen. "Kitchens are critical," says Robert Irwin, author of "Home Buyer's Checklist." "Today, people like a big kitchen with a lot of workspace."

They look for solid surface counters and high-quality flooring, such as wood, laminate, tile or stone. And they want newer appliances in working order.

Even if it's not huge, it should have "countertops that are serviceable that aren't going to have to be replaced soon and cabinetry in good condition," says Alan Hummel, past president of the Appraisal Institute. "It has to be well-appointed and large enough to fit your needs."

And it doesn't hurt if it opens onto another room. "A lot of families are looking for that openness," says Hummel.
It helps to have a window over the sink, says Don Strong, a remodeler with Brothers Strong Inc., a Houston remodeling firm.

Be wary if renovations are out of character with the community, such as granite countertops in a subdivision where plastic laminate is the norm.

"Will you sell faster? Yes," says Hummel, CEO of Iowa Residential Appraisal Co., in Des Moines. "Will it sell for more? Not if the appointments you've done are significantly higher quality that the rest of the neighborhood."

2. Modern bathrooms. Buyers are looking for "master baths that give a little room to roam," says Hummel.

A big asset: spa or whirlpool tubs. "I'm always entertained by the people who have them in the master bath and don't use them," says Ron Phipps, principal broker with Phipps Realty & Relocation Services in Warwick, R.I. "But it's a big feature."

Some other features buyers are seeking: separate showers with steam and/or multiple jets, double sink, separate room for the toilet.

And make sure the plumbing and hot water heater can handle the job. The pipes have to be large enough to carry an adequate volume of water and the hot water heater has to be big enough to accommodate it. "You need a bare minimum of a 75-gallon hot water heater, and most of my customers have 100 to 150," says Chicago-based home inspector Kurt Mitenbuler.

"You don't want to see that false economy of a $30,000 bathroom but nobody spent a few thousand dollars to upgrade the pipes," he says.

3. A well-appointed master suite. "People are really excited about master suites," says Hummel. The wish list: a luxurious bathroom, lounging areas and walk-in closets.

4. Natural materials. "People like natural materials," says Phipps. "Ceramic tile, hardwood floors, granite. We've gone back to a real appreciation for historically true materials. And simulated works as well. The look is very popular."

In floor coverings -- especially bathrooms or kitchens -- look for ceramic tile or wood rather than linoleum, which can tear, says Strong.

In the rest of the house, wood or laminate products are a plus over wall-to-wall, says Gary Eldred, author of "The 106 Common Mistakes Homebuyers Make (and How to Avoid Them)".

But if you have carpet, it should be a good product and well maintained so that "a person doesn't have to walk in and think, 'I'm going to have to spend five grand right off the bat," says Strong.

5. Curb appeal. "A good first appearance on a home can add as much as 5 percent to 10 percent to the value of the home," says John Aust, president of the National Association of Real Estate Appraisers. "Homes in a neighborhood tend to vary about 10 percent from house to house, assuming all other things are the same."

6. A light, airy spacious feel. "People buy space and light," says Myra Zollinger, owner/broker with Coldwell Banker Realty Center in Chapel Hill, N.C. "I have yet to have anybody walk into a really dark house and say, 'I love this.'"

Richard "Dick" Gaylord, member of the executive committee for the National Association of Realtors, agrees. "That's a very big feature," he says. "I haven't sold many homes that aren't bright and airy."

7. Good windows. "People are looking at exposures and windows," says Phipps. "It's been a cold winter for most of the country and energy efficiency is very important."

Insulated windows are always a plus, says Strong. "Typically, they pay for themselves in five years," he says. The cost: for an average 2,600-square-foot home, estimate about $10,000 for new windows, he says.

Well-placed skylights are also a good touch to add value, says Phipps.

8. Landscaping. Mature trees "are worth $1,000," says Strong.

And having outdoor spaces with touches such as pergolas and Victorian garden swings "can be very helpful," says Phipps.

Appraiser John Bredemeyer remembers one $250,000 home in Omaha that had no landscaping at all. "It was stark," says Bredemeyer, national chair of government relations for the Appraisal Institute, a professional group for real estate appraisers. "It just stood out as unappealing."

Conversely, you don't have to spend a fortune on plants, either. Just keep it "typical with the neighborhood," he says.

9. Lots of storage. Nothing beats an oversized garage, some attic space and plenty of closets. "If you have a two-car garage, do you have extra space for those things we all have -- bicycles, lawn mower, snow blower?" says Hummel. "Space is important."

A nice plus in the master suite? "His and hers walk-in closets," says Irwin.

10. Basement. "If it's dry, it's a plus," says Kenneth Austin, co-author of "The Home Buyer's Inspection Guide." "But it's a negative if it has water problems."

A finished basement adds even more value. "Ten years ago, nobody cared," says Mittenbuler. "Now everybody wants them."