With mortgage rates hitting record lows and government programs such as the Home Affordable Refinance Program (HARP) 2.0, many Las Vegas homeowners and real estate investors took advantage of the opportunity to refinance the loans on their properties in 2012.  However, correctly deducting the costs of a refinance may be a complicated matter requiring professional services from a qualified CPA or tax preparer.

At closing, borrowers typically sign a settlement statement (also known as a HUD-1 or closing statement) that gives a detailed list of refinancing costs.  Because settlement statements are usually long and difficult to understand, tax deductible items from these documents are sometimes overlooked.  For personal residences, the tax deductible costs may include points and prorated real estate taxes.  For rental and commercial properties, settlement statements contain many types of loan fees, prorated association dues and utilities expenses that may be deductible.

Generally, points paid for refinancing are amortized and deducted over the life of the new mortgage.  However, if the mortgage is later refinanced or paid off early, the unamortized points may be fully deductible in the year of the payoff or subsequent refinance.  For this reason, it is important to carefully track the unamortized balance of points from year to year so a significant deduction is not missed.

There are several special rules.  For example, a taxpayer that uses part of the refinanced mortgage proceeds to improve his or her main home and meets other requirements may be able to fully deduct the part of the points related to the improvements in the year of refinance.

Be sure to read our disclaimer and consult with your tax advisor regarding deductions for refinancing costs.  For a free no obligation consultation with one of our Las Vegas CPAs, please contact Dustin Wheeler.

Last year, I wrote about the debut of IRS2Go, the first smartphone app from the IRS.  Yesterday, the IRS announced the release of version 2.0 of the app.  The new version includes tools to watch IRS YouTube videos, order tax return transcripts, and get the latest news from the IRS.

If you have a portable device with either the Apple or Android platforms, the IRS app may be the easiest and most convenient way to check the status of your refund.  If you want to maximize your tax refund and take advantage of every deduction that is legally allowed, please contact a Las Vegas CPA from Wallace Neumann & Verville, LLP.

The real estate market crash has been brutal to Las Vegas homeowners who have become underwater with their mortgages or have lost their homes through foreclosures and short sales.  For others who are more fortunate, the low housing prices in Las Vegas have provided them with the opportunity to purchase their first primary residence or investment property.  First-time homeowners and real estate investors who previously prepared their own tax returns may suddenly find themselves overwhelmed and may seek the help of a CPA.  Some of the accounting and tax challenges that real estate owners face are:

• Correctly reporting amounts on the settlement statement.  Also known as a HUD-1 or closing statement, this is the document usually printed on legal-size paper that shows the purchase price of a home and all of the costs incurred at closing.  Some amounts on the settlement statement may be deductible in the year you purchase your home.  Other items are added to the basis of the property, potentially providing a depreciation deduction or reducing the amount of tax you will need to pay when you sell your home.  In some cases, amounts may be amortized and deducted over the life of the loan.
• Classifying real estate activities on a tax return.  If you rent out a home, is it considered a passive activity for tax purposes?  Do you qualify as a real estate professional and are therefore able to take advantage of special tax breaks?  Are you involved enough in real estate activities to have the money you make from flipping homes subject to self-employment tax?  There are many questions that your CPA can help answer.
• Determining whether certain costs are repairs or improvements.  Many of the best deals for real estate in Las Vegas are foreclosures, but some of these homes require significant repairs or improvements.  For example, you may have to replace a water heater, put in new carpet, or hire a painter.  Are these costs deductible repairs or depreciable improvements?
• Bookkeeping for multiple real estate investments.  If you own several rental homes and manage them yourself, you’ll want to make sure you are well-organized for tax time.  Some real estate investors use QuickBooks, a popular accounting software, to keep track of income and expenses for various rental properties.  A QuickBooks feature called “classes” allows a rental property owner to run profit and loss statements for several different properties within a single data file.  Other real estate investors have separate bank accounts for each property or use other methods to successfully do the bookkeeping for multiple investments.

If you have discovered accounting for real estate transactions to be a daunting task, feel free to contact me or another Las Vegas CPA from Wallace Neumann & Verville providing tax and accounting services to individuals involved in real estate.