Tax Saving Tips For 2012 Tax ReturnApril 15th seems a long way off, but it will be here before you know it.

Now is the perfect time to start getting your paperwork in order.

Owning real estate can make a big difference on your tax return, so make sure that you’re taking advantage of all the deductions you’re entitled to.

We’ve outlined a few below:

Mortgage Interest

Unless you paid cash for your purchase, you probably took out a loan to buy your Richmond home.

Mortgage interest is one of the best tax deductions available, so be sure to hang on to that 1098 Mortgage Interest Statement from your lender.

You can almost always deduct the entire amount of interest paid per calendar year.

Real Estate Taxes

Depending on where your property is located, you are likely paying real estate tax, either to the state or to a local governing authority.

Taxes based on property value are generally deductible as well. You may have an escrow account to hold these funds during the year, so be sure that you only deduct the amount of taxes you actually paid.

Home Equity Line of Credit

You may deduct home equity line of credit (HELOC) debt interest as long as you are legally liable to pay the interest, the interest is paid in the tax year, and the debt is secured by your home.

The home equity debt has a limit of up to $100,000 ($50,000 if married filing separately).

Mortgage Insurance Premiums

Depending on how your loan is structured, you may have mortgage insurance. With the recently passed American Tax Relief Act of 2012, all mortgage insurance premiums are tax deductible for the 2012 and 2013 tax year. There are some qualifications, so check with your tax advisor.

Mortgage Interest on Land

If you purchased land with the intent to build, the interest you have paid may qualify as deductible mortgage interest as long as the structure becomes your qualified residence within a 24-month period.

This deductibility of bare land mortgage interest is a tricky one. You can see the IRS explanation here.

Your home could be one of your greatest resources for reducing your tax liability. Most times these deductions are itemized on a Schedule A (Form 1040) when you prepare your taxes.

A great next step is to call a qualified tax planning professional.  Please feel free to contact us if you would like a referral.

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Escrow taxes and insuranceAs a homeowner in Midlothian , your fiscal responsibility extends beyond just making mortgage payments. You must also pay your home’s real estate taxes as they come due, as well as your homeowners insurance policy premiums.

Failure to pay real estate taxes can result in foreclosure. Failure to insure your home is a breach of your mortgage loan terms.

There are two methods by which you can pay your real estate tax and homeowners insurance bills.

The first method is to pay your taxes and insurance as the bills come due, usually semi-annually. Depending on your home’s tax bill size and the cost to insure your home, these payments can feel quite large — especially if you’ve failed to budget for them properly.

The second method of paying your taxes and insurance is to give your lender the right to pay them on your behalf, a process known as “escrowing for taxes and insurance”.

When you escrow your real estate taxes and homeowners insurance, you pay a portion of your annual obligation to your lender each month, which your lender then holds in a special account for you, and disperses to your taxing entities and insurance company as needed. Lenders prefer that homeowners escrow taxes and insurance because, in doing so, the lender is assured that tax bills remain current and that homes stay insured.

Want a discount on your next mortgage rate? Tell your lender that you’re willing to escrow.

To help calculate your monthly escrow payment to your lender, do the following :

  1. Find your home’s annual real estate tax bill
  2. Find your home’s annual homeowners insurance premium
  3. Add the two figures and divide by 12 months in a year

The quotient is your monthly “escrow”; the extra payment you’ll make to your lender each month along with your regularly scheduled principal + interest payment. Then, when your tax bills and insurance premiums come due, your lender will make sure the payments are made on your behalf.

If you’re unsure whether escrowing is right for you, talk to your loan officer and/or financial planner. There are valid reasons to choose either path.

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