Tax tip Tuesday! Advice for first-time home buyers

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By Tami Hoey By Tami Hoey

PHOENIX -- Tax day is looming in just a couple of months, so Tax Tip Tuesday here on Good Morning Arizona helps you figure out ways to save.

CPA Bob Hockensmith had some advice this week for home buyers, especially those buying for the first time. He also had tips for those who rent vacation homes.

If you're a first-time home buyer, or if you haven't owned a home in the past two years, maybe buying a house, taking out a mortgage, and moving are at the forefront of your mind.

With home prices still low along with mortgage interest rates, now is the time many people will consider a home purchase. Remember, your new home also offers you some tax benefits that can save you money.  Here are some of the different types of deductions available on your federal tax return because you own a home:

-Mortgage Interest - Mortgage cannot exceed the value of the home. If so, then the excess mortgage is considered investment interest. And mortgage interest deduction is only available up to certain dollar limits. (Excess mortgage, home equity line of credit, and limits on high income earners)

-Prepaid mortgage interest -on original purchase and any refinance of property, depending on date of the month you close.

Points or Origination Fees - deductible for points paid up front or at closing, either by you or the seller.

-Real Estate Taxes - current or prepaid real estate taxes are deductible.

-Mortgage Insurance Premiums - sometimes these are known as MIP or PMI. This deduction is available up through 2013.

Vacation Home Rentals

If you rent a home to others, you usually must report the rental income on your tax return. But you may not have to report the income if the rental period is short and you also use the property as your home.

In most cases, you can deduct the costs of renting your property. However, your deduction may be limited if you also use the property as your home. Here is some basic tax information that you should know if you rent out a vacation home:

-Vacation Home - A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.

Schedule E - You usually report rental income and rental expenses on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to Net Investment Income Tax.

-Used as a Home - If the property is "used as a home," your rental expense deduction is limited. This means your deduction for rental expenses can't be more than the rent you received.

-Divide Expenses - If you personally use your property and also rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. To figure how to divide your costs, you must compare the number of days for each type of use with the total days of use.

-Personal Use - Personal use may include use by your family. It may also include use by any other property owners or their family. Use by anyone who pays less than a fair rental price is also personal use.

-Schedule A - Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.

-Rented Less than 15 Days - If the property is "used as a home" and you rent it out fewer than 15 days per year, you do not have to report the rental income.

Also remember to keep receipts and purchase documents, when buying, improving, or refinancing a home, for as long as you own the home. The expenses, or costs, prove your basis (what you paid) for the property. This will reduce or eliminate any taxes owed on profits made when you sell the house. Keep these purchase or home improvement receipts in a safe place, so you will have them to show your accountant and possibly the IRS.

For more information visit: azmoneyguy.com