This tax season, know the available deductions for homeowners
"Tax reform is taking the taxes off things that have been taxed in the past and putting taxes on things that haven't been taxed before."
-- Art Buchwald
A mere 96 days remain before your federal income tax return must be sent to the Internal Revenue Service.
Now is the time to start preparing so you can take all of the deductions and credits authorized by law.
True, you can file IRS Form 4868 and receive a six-month filing extension, but you still have to pay the full amount of the tax you owe for last year, which means you at least have to prepare a careful estimate of your liability.
A good first step in determining your tax obligation is to go to the IRS Web site, where you will find a host of publications to download. Perhaps the most comprehensive publication is No. 17, a 280-page booklet titled "Your Federal Income Tax for Use in Preparing 2009 returns."
This column is the first in a series aimed at assisting homeowners in understanding basic tax rules and concepts.
First, a few definitions:
-- Tax credits versus deductions. According to Julian Block, tax attorney and author of "The Home Seller's Guide to Tax Savings," most people do not understand the difference between the two. Credits, he writes, "lower a person's taxes dollar for dollar, making them more valuable than deductions, which merely reduce the amount of income on which taxes are figured."
Block provides this example: "A deduction of $1,000 saves $350 in taxes for someone in the highest bracket of 35 percent, but only $100 for someone in the lowest bracket of 10 percent A credit of $1,000 reduces taxes by that amount, whatever someone's bracket is."