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TAX DEDUCTIONS FOR OWNING A HOME
Below are the top ten tax benefits of owning a home -- from the time
you purchase your home till you sell.
We also invite to you read the section related to
homeowner tax
myths.
Mortgage Interest - When filing your tax return, and you
are filing jointly, you can deduct 100% of your mortgage interest
payments on a maximum of $1,000,000 combined from your first and
second mortgages. If you file separately, you can each deduct 50% of
your mortgage interest payments for up to $500,000 mortgage debt.
If you paid cash for your home, you can not utilize the tax
break of the interest if you take out a home equity loan and you use
your home as collateral.
Points - The
fees mortgage lender and banks charge when
funding mortgages are called 'points'. Typically, a point is 1% of
your mortgage loan principal. 1-3 points is the common fee. The
points will equal several thousands of dollars. The points associated
with buying a new home are 100% deductible.
Refinance home loan points are also deductible, as long as their
are amortized over the life of the loan. Typical course of action
when you refinance is to instantly write off the remainder of the old
points and to start to amortize the new.
Equity Loan Interest - Interest rates associated with
home equity loans are also tax deductible. However, you are
limited as to how much you can deduct. For example, you can deduct
the smaller of the following: $100,000 ($50,000 if you file
separately) or the
fair market value of your home if you were to sell it minus any
debts against your home.
Interest from Home Improvement Loans - Home improvement loan
interest is tax deductible. There is no limit as to how much you can
deduct when you
apply for home improvement loans. However, the work that is done
must be a 'capital improvement'.
A capital
improvement is work that is a permanent upgrade
and adds value and functionality to your home. For example, a new
garage, room, pool, porch/deck are all capital improvements.
Types of
home improvements that are not considered capital
improvements, resulting in no tax break, are re-painting, fixing
broken windows and repairing leaks.
Property Taxes - Otherwise known as 'real estate taxes' are
100% deductible from your income. Note that you can not deduct money
in escrow until the money is actually utilized for paying your
property taxes.
Home Office Deduction - For those that have an office in their
house, you can take deduct a percentage of home costs including
utilities and home repairs. You can also make a payment from your
business to your personal account for rent.
Selling Costs and Capital Improvements - When you sell your
home you can deduct the taxable capital gain by the sum of the cost
to sell.
Selling costs include: real estate broker commissions, legal costs,
advertising, title insurance and inspection fees, etc.. You can
also deduct the cost for making repairs and/or decorating as long as
they are completed within 90 days of the sale of your home and are
intended to help you get more money from the sale, i.e. landscape
improvements, painting, window repairs, etc..
All selling costs are tax deductible from the gain of your home. The
selling price is the gain minus closing costs, selling costs and your
tax basis in the property. Your basis is the original purchase price,
plus the cost of capital improvements, minus any depreciation.
Capital Gains Exclusion - When you sell your home,
if
you file your tax return jointly,
you get to keep as much as $500,000 of your profits, tax free!
If you file separately, you can keep $250,000 each.
The Cost to Move - If you have to relocate
because of a new job opportunity, you can likely deduct some of the
cost for moving. In order to qualify for deducting moving costs you
must satisfy all of the following: You must move into your new
residence within one year from the time you start your new job. Your
new job must be at least 50 miles further from your home than your
old job was. You must be employed full-time at your new job for no
less than 39 months of the year after you move.
Additional deductions for moving may include the coat for
travel and transportation, lodging and storage.
Mortgage Tax Credit - There is a mortgage credit
certificate that allows
first time buyers with low levels of income
to receive a tax break on mortgage interest payments for up to 20%.
This credit is accessible every year you live in your home and
utilize the same mortgage purchased with the certificate. The credit
is taken from from the income tax owed. For example, if you paid
$20,000 in interest, your tax credit would be $4,000. If you make,
$40,000/year and owe $4,000 in income taxes without the credit, you
will not have to pay the IRS anything once the credit is utilized.
The remaining 80% interest -- equaling $12,000 -- would be your
mortgage interest deduction.
**When you purchase a vacation home, you are entitled to extra
tax breaks for your second home .
In addition to the information above, we feature an entire section
related to
taxes.
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