3 often-overlooked real estate tax breaks

You may save some money come tax time if you consider these options.

By MSN Real Estate partner Mar 4, 2014 10:21AM

© Oleksiy Mark/Getty ImagesBy Tara-Nicholle Nelson, Trulia 


Many people make lots of moves – real estate and otherwise – to minimize what they owe and maximize what they get back on their taxes. The first step is to make sure you're not actually missing any tax deductions and breaks you already qualify for.


The tax code is 4 million words and over 70,000 pages long, but most Americans tap into fewer than 15 pages of it when filing their returns. To make sure we're not missing anything we're due, here are a few of the real estate-related tax breaks that are often missed, overlooked and underused.


Post continues below

1. State and local tax breaks for 'green' home improvements

As the recession recovery made its way into full swing in 2013, many homeowners started down a path of improving their home's energy efficiency for a variety of reasons, including cash savings on their utility bills. Many of those improvements are eligible for state, county and/or city tax credits or tax breaks. If you installed dual-paned windows, insulation, low-flow plumbing appliances, tankless water heaters or solar panels in 2013, dig up your receipts and talk with your tax preparer or visit your state, county and city government websites to research tax advantages you might already be eligible for.

2. Mortgage-interest tax break

Many homebuyers expressly call out the mortgage-interest tax deduction as a major motivation behind their desire to own a home. Proof: In a survey conducted by the California Association of Realtors, 79 percent of people who bought a home in 2012 said the mortgage-interest and property-tax deductions were “extremely important" to their decision to buy. However, it's shocking the amount of homeowners who still don't take the mortgage interest deduction every year.


According to the American Institute for Economics Research, only about 63 percent of homeowners itemize deductions – a prerequisite to taking the mortgage-interest deduction and its cousin, the property-tax deduction. 

There are many reasons why homeowners don't take advantage of this tax break – one being their income tax liability is simply so low that itemizing their tax deduction doesn't pencil. That just means that some people's holistic financial picture, including the income they earn and the mortgage interest they deduct, renders the standard deduction larger than the tax break they would receive by virtue of the mortgage interest and other itemized deductions. However, many homeowners who could be eligible for great benefits from itemizing don't fully appreciate or simply don't feel up to the task of determining whether they have sufficient nonmortgage-related deductions to itemize, so they do their own taxes and just take the standard interest deduction to minimize the work.


If you have a high mortgage or property-tax bill, it might be obvious that itemizing makes sense. But if not, you owe it to yourself – and your bank account – to at least try working with a tax preparer or committing to spend the time and energy it takes to explore the question of whether itemizing makes sense.

3. CODI income-tax exemptions

Again, 2013 was a year in which many homeowners – or former homeowners – took pains to use their newly stable incomes to heal the financial wounds of the recession. For many, this involved settling debts with former lenders on homes that were foreclosed, short sold or even retained with defaulted second loans or home equity lines of credit.


Normally, defaulted mortgage debt that is forgiven through a foreclosure, short sale, deed in lieu of foreclosure or settlement via partial payment is actually charged to a taxpayer as income. It's called Cancellation of Debt Income, or CODI. Under the 2007 Mortgage Debt Forgiveness Relief Act, though, the IRS has temporarily exempted CODI from incurring income-tax liability for as many as 100,000 homeowners a year, to avoid penalizing homeowners for these sorts of settlements and resolutions to upside-down home mortgages.

The act expired on Dec. 31, though talks are ongoing about extending it into this year. If you were one of the hundreds of thousands of American homeowners who was able to close a short sale or settle a defaulted home loan in 2013, chances are good that you are eligible to tax advantage of the CODI tax break when you file your 2013 return.



More from Trulia 



Tags: loans
Mar 4, 2014 6:26PM
If you owe $100,000 (or more) on your mortgage, and your home is "underwater" due to that high mortgage,  and that debt is discharged via a short sale, why should that not be counted as income?  If someone sells their home without a short sale, and makes a profit, they're expected to claim that income.

If it's too difficult to pay tax all at once, perhaps the IRS could allow people to amortize the payments over a number of years.  But those who chose to take a huge mortgage they couldn't pay shouldn't benefit on the backs of the taxpayers.

As others here have said, the government keeps rewarding profligate spending.  When you reward something, you get more of it.
Mar 4, 2014 6:15PM
These public monies given for real estate investment or speculation should be halted.  Tax breaks are just that, public monies, taken unfairly from the Treasury to support individual choices.  Want real reform and better use of public monies?  The stop subsidies, tax breaks, incentives and other public monies going to private and corporate uses.  If we had a progressive flat tax on every dollar earned with no deductions, we'd have way lower taxes in general and a much fairer system. 
Mar 4, 2014 3:04PM
Purchasing rental property is a great way to soften your tax obligation.  
Mar 4, 2014 3:04PM

It pays to be a deadbeat...or have a bunch of kids these days...tax breaks galore.

where's the tax breaks for the single homeowners with no kids...I should at least be able to claim "head of household",  If I'm not the head of my household, who the hell is???

Mar 4, 2014 2:56PM

#3 - CODI
Of course, once again, we reward the "bad" people.  What about those of us who paid our mortgage (and on-time) forever?  Where's our incentive?  I guess it pays to be a "drain on society".

GOVERNMENT:  Start rewarding the good people, not the bad.  I paid my house off this past year, I should get a check for doing so.  Instead you give my tax money to the people who don't deserve it.

And for those of you who sympathize with the foreclosures and short sales:  The Mortgage Companies and the borrowers are the one's responsible for their own actions.  If you make $15/hr. there's no way you can afford a $300k home.  Be realistic and get a clue.

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Powered by



Find local plumbers, electricians, contractors and more.