Keeping Pace at the Speed of Life - Part 3
by Bob Williams
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If your last 12 months were like ours, there’ve been a lot of changes in our daily lives. And some of those changes are bound to impact your income tax picture. We’ve looked at a few so far, but we saved the biggies for last.
El Hoyo del Dinero
If you bought your first home this year, then you’re fast learning the joys of home ownership. Furnace breakdowns, insect hordes, leaky roofs, sewer backups – the enjoyment is endless. Oh, and did we mention property taxes?
One area has been softened somewhat by the IRS. The interest you pay on your home mortgage is generally deductible. Most homeowners can deduct all their mortgage interest, but exactly how much depends on the amount of the mortgage, the date it was acquired, and how you use the mortgage proceeds. For all the details, check the IRS Publication 936, Home Mortgage Interest Deduction.
If you installed any energy efficient systems in your home, namely solar panels, geothermal or wind-powered generation systems, you can get a portion of that expense back. Energy Star-rated doors and windows are also covered. There are limits, of course. To see what you might recoup, download Form 5695, Residential Energy Credits.
Even if you sold your home this year, you'll still be able to claim the mortgage interest you paid before the sale.
Renting has its benefits – none of those nasty repair bills, hopefully – but you also don’t get the mortgage insurance deduction, either. In technical tax return language, it’s a wash.
Who Lives With You, Baby?
There are two scenarios that can become reality virtually overnight; both are pretty scary. Your kids can come back home to live with you after being out on their own – or your parents do. Both events carry their own stresses and their own possibilities for deductions.
When the kids come back home to roost, you may still qualify for the Earned Income Credit – but it depends. In order to qualify for the EIC, your boomerang boy or gravity girl has to meet age requirements. They have to be under 19 years of age, or, if they are a student, under age 24. You, of course, have your own income requirements; they’re laid out in IRS Publication 596, Earned Income Credit.
But even if they don’t qualify for EIC, you may be able to claim them as a dependent on your income tax return. The rules are pretty simple for that: They have to live with you for more than half the year and you have to supply more than half their support.
A Mom and Pop Operation
The dependent’s requirements are different when it’s your parents we’re talking about. The IRS recognizes that having our parents come to live with us is a pretty serious matter. But parents are considered our dependents if we provide more than half their support, whether or not they live with us. That way, if your Mom and Dad still live in their home, you get to claim them as dependents if you’re footing most of the bills.
IRS Publication 501, Exemptions, Standard Deductions, and Filing Information, gives the following example to illustrate this:
“You and your wife began supporting your wife's father, a widower, in 2006. Your wife died in 2011. Despite your wife's death, your father-in-law continues to meet this test, even if he does not live with you. You can claim him as a dependent if all other tests are met, including the gross income test and support test.”
If parents are under your roof, any modifications you make to your home for their mobility or safety – ramps to the front and back doors, for example – can be deducted as a medical expense. If they require around-the-clock sitters, you can get a break through the Child and Dependent Care Credit.
Well, it’s been quite a journey. We’ve attempted to touch on some of the events that you may have experienced during the tax year that could mean a change on your income tax return. And while we hope your year has been a quiet and prosperous one, remember we’re here to help smooth out some of those bumps if it isn’t.
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