Tax Day 2011: What's new for homeowners

The nation's embattled homeowners may find some financial solace this year as Tax Day rolls around on April 18. A slew of credits and deductions can help ease the overall bite of federal taxes.

Below you'll find a reminder of some of the main tax benefits that come along with the costs of owning a home. The tax benefits may be especially welcome at a time when the home values in many parts of the country remain far below their pre-recession peak.

But first, a warning about the opposite situation, a new tax burden on some Americans with mortgage payments: If you purchased a home in 2008 and reaped a special tax credit for first-time homebuyers, pay attention this year.

It turns out the tax credit, designed to stimulate home sales during the recession, is more like a no-interest loan. Homebuyers need to pay it back, in 15 equal installments, starting in the 2010 tax year that's now coming due.

"To repay the credit, you must attach a completed Form 5405 to your tax return each year" starting in 2010, the Internal Revenue Service says in a news release. The IRS includes further details noting some exceptions to the rule and what happens when people sell the home before 15 years go by.

Note that this repayment rule only applies to homes purchased in 2008. The homebuyers tax credit in 2009 and 2010 had different terms with no repayment required.

Now to the tax breaks that homeowners may be able to claim for 2010. Here are some of the biggest opportunities, according to CCH, a publisher of tax information:

• Homeowners can take an itemized deduction for mortgage interest on up to $1 million in debt (for their main residence and one other home). Home-equity loan interest is also generally deductible.

• Owners can take their state and local property taxes as an itemized deduction. However, for those who don't itemize deductions, an option to augment the standard deduction based on property taxes expired at the end of 2009 and is not available for 2010.

• Owners who sold a home in 2010 can exclude up to $250,000 of gain on the sale (up to $500,000 for joint filers). This break on capital gains is generally available only if the home was their main residence for two out of the five years prior to the sale.

• If a homeowner had mortgage debt of up to $2 million canceled on their principal residence, such as through write-down or foreclosure, it is not treated as a taxable “cancellation of debt income.” This special relief is temporary and retroactive (for taxpayers filing amended returns), lasting from Jan. 1, 2007 through the end of 2011.

• A refundable “first time homebuyers’ credit” of 10 percent of the purchase price of a new home – up to $8,000 – is available for homes purchased before Oct. 1, 2010, with binding agreements set before May 1, 2010. The taxpayer must not have had an “ownership interest” in a principal residence for three prior years. A similar but smaller credit (up to $6,500) is available for "repeat homebuyers." To qualify, they must have used the same home as a principal residence for five straight years within a time period that may go back eight years.

• If you installed qualifying energy-efficient fixtures by Dec. 31, 2010, you may claim a 30-percent tax credit – up to a maximum of $1,500. The Recovery Act of 2009 allows the credit for installing insulation, energy-efficient windows and doors, heat pumps, furnaces, central air conditioners, and water pumps.

Tax Day 2011:

Part 1: When is the tax deadline? Hint: It's not April 15.

Part 2: What's new for homeowners?

Part 3: Checking on your refund? There's an IRS app for that.

Part 4: When did America levy its first income tax? The Civil War.

Part 5: Schedule M could be worth up to $800

Part 6: Four ways to protect your tax returns from data thieves

Part 7: Last-minute tips to keep the Internal Revenue Service away

Part 8: Tax Day 2011: Why do presidents release tax returns? Hint: 'I am not a ...'

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