Home Sweet Home: 3 Easy Mistakes Home Owners Make on Their Taxes

As you calculate your tax returns, consider each home tax deduction and credit you are — and are not — entitled to. Running afoul of any of these  home-related tax mistakes — which tax pros say are especially common — can cost you money or draw the IRS to your doorstep.

By G. M. Filisko

#1 Property tax deduction
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, meaning that 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 2013, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.

#2 Misjudging the home office tax deduction
This deduction may not be as good as it seems. It’s 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. Hampton’s advice: Claim it only if it’s worth those drawbacks. If so, here’s what to know about what you can write off.

#3 Filing incorrectly for energy tax credits
If you made any eligible improvements in 2012, or will in 2013, such as installing energy-efficient windows and doors, you may be able to take a 10% tax credit (up to $500). But keep in mind, it’s a lifetime credit. If you claimed the credit in any recent years, you’re done. Fill out Form 5695.

Part II of the form, which covers systems eligible for a larger tax credit through 2016, such as geothermal heat pumps, can be incredibly complex and involves crosschecking with half a dozen other IRS forms. Read the instructions carefully.

This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.