Unless you are able to harness the powers of time travel, it's too late to fix this year's tax bill.
But, it's never too early to start planning your real estate tax strategies for next year. To better prepare you, we've decided to point out several real estate tax breaks you may have missed for 2005. Perhaps the pain will focus your attention for 2006.
You say you deducted your mortgage interest? Big deal. That's amateur hour. Just about anyone who's ever wielded a 1040 knows that's an obvious deduction. If you're smart enough to own a house, you're smart enough to figure that out.
However, there are also plenty of other (perfectly legal) real estate strategies that can help lower your next tax bill. They range from the super-simple, like remembering to deduct the points on a new mortgage, to the somewhat complex, like trading up on an investment property in order to defer taxes on a sales gain.
Little things, such as paying attention to the number of days you stay at a vacation home, can affect your tax bill. (If you use the vacation property for either 10% of the time it is rented or just 14 days — whichever is greater time-wise — the property can be considered an investment.) But so can big things, like marriage, which doubles the tax-exempt portion of a home sale gain.
The good news — or the bad news, depending on your viewpoint regarding tax laws — is that this past year has seen very few changes to federal tax law, especially when it comes to real estate. Translation: There are few new ways to get tripped up — or to minimize your bill — come tax time.
Some major events, namely Hurricanes Katrina, Rita and Wilma, did make a few changes necessary. Following this past fall's disasters, Congress passed a tax bill that enabled people living in what is declared a presidential disaster area to fully deduct their casualty losses. Prior to this, victims could only deduct casualty losses that were more than $100 and to the extent that they exceeded 10% of their adjusted gross income.
Take a hypothetical example from Kenneth M. Hart, a tax lawyer at Gunster Yoakley & Stewart in West Palm Beach, Fla.: Say your AGI was $200,000, and you incurred $15,000 of casualty losses as a result of Hurricane Wilma. Under the prior law, you couldn't deduct any. This year, you can deduct all $15,000.
Otherwise, the tax breaks you likely missed in 2005 are largely the same as those you missed in 2004. In some cases, however, you may be fortunate enough to be able to file an amended return this year. And if not, you'll still get your shot. After all, April 2007 is still many months away.
In the meantime, Bill Abrams, a partner in the Manhattan law firm of Abrams Garfinkel Margolis Bergson, says a good way to make sure you're getting all the tax breaks you can is to "keep good books and records. You'd rather be the Felix Unger than the Oscar Madison."