How does kitchen remodel figure into taxes?
With Tax Day less than a month away, plenty of taxpayers are puzzling over IRS forms. This week, IRS expert Jesse Weller answers tax questions about kitchen remodels and same-sex marriages.
QUESTION: We paid off our home mortgage in 2005. Last month we started a big kitchen remodel and opened a home equity line of credit with our credit union. Is the interest that we pay on the home equity tax-deductible, as long as we only use it on kitchen remodeling expenses (and save all our receipts as proof)?
ANSWER: It sounds like you can deduct your interest on the home equity line of credit.
Generally, taxpayers can deduct qualified home mortgage interest if they itemize deductions on Form 1040, Schedule A, and the mortgage is a secured debt on their main home or a second home they own. A mortgage taken out after Oct. 13, 1987, where the money is used to buy, build or improve a qualified home, is known as "home acquisition debt."
On a qualified mortgage of $1 million or less ($500,000 or less if married filing separately), the interest paid usually qualifies for a deduction.
In most cases, taxpayers can deduct all of their home mortgage interest, but there are limits. The deduction amount depends on the mortgage date, amount and how the proceeds are used.
On a home equity debt, even if the proceeds are not used for a home improvement, an interest deduction may be allowed up to $100,000 ($50,000 if married filing separately).
For more information, visit http://www.irs.gov/ and download Publication 936, Home Mortgage Interest Deduction. Or order a copy by calling 800-TAX-FORM (829-3676).
Q: I am in a same-sex marriage, legally recognized in California. It is now mandatory that we split income and expenses for community property on our federal tax returns. I spent two hours on the phone and no one from the IRS could answer my questions about how to split my income/expenses when my partner is not involved with my consulting business. Likewise, no one could answer whether or not my partner's Social Security income should be split 50/50 or how to handle his Medicare premiums. I was told a "research inquiry" was submitted and someone will get back to me in 15 days.
IRS Publication 555 contains confusing and conflicting info. Where can I get accurate info if even the IRS can't assist me?
A: I apologize for any inconvenience during your recent contact with the IRS. Sometimes a telephone inquiry requires additional research to give an accurate response. That can be the case even when dealing with federal-only tax issues.
When both federal and state laws apply to a tax situation, the answer is likely to be more complex. That's the case here with state and federal laws that affect all Registered Domestic Partners in three states (California, Nevada and Washington), as well as same-sex married couples in California.
IRS Publication 555, Community Property, is an excellent resource. I have worked with many people who create and update IRS forms, instructions and publications. They have a tough job - often putting complex tax rules into plain language to help the public understand what they need to know. No publication covers every situation, but our goal is to present federal tax information that is as current and accurate as possible.
When the issue is complex, I recommend that taxpayers seek the counsel of a tax professional. It is especially a valid option when applying new rules such as these that overlap federal and state laws.