Mortgages | Car Loans | Personal Loans | Debt Consolidation | Credit Reports | Credit Cards




 


 



 -
 -
 -
 -


 -
 -
 -
 -

Personal Loans
 -
 -
 -


 -
 -
 -


 -
 -
 -


 -
 -
   -
 -Card for Students
 -
   --

Credit Help
 -Credit Repair Agencies
 -Credit FAQ
 -Making Bad Credit Worse

Taxes
 -Tax Fears
 -Who Has to File
 -Can't Pay?
 -Record Keeping

Managing Money
 -Saving Money
 -Developing a Budget
 -Financial Emergencies

Checking Accounts
 -Protecting Accounts
 -Bank Fees
 -ATMS
 -Debit Cards


 



 

 


HOMEOWNER TAX MYTHS
Not only is buying a home a great investment, it provides shelter for you and your family. Owning a house will entitle you to great homeowner tax breaks. However, the actual tax breaks homeowners receive is not clear-cut. Below are some of the most common misconceptions people have about owning a home.

Mortgage interest reduces taxes
This is true for many homeowners, but not all. Also, this tax break does not last forever.

In order to reap the benefits of your loan's interest, your itemized total must surpass your standard amount. For example, on 2006 tax returns, the standard deductions will be $5,150 for single taxpayers, $7,550 for head of household filers and $10,300 for married couples who file jointly. These amounts increase a bit each year to account for inflation.

 

Because of the high price of homes, many Americans are itemizing their tax returns. Adding up property taxes, mortgage interest and other non-home deductions (i.e. charitable gifts, state taxes), results in the totals of these itemized items to easily surpass the standard deductions. On the contrary, homeowners that buy their home's in the later part of the year are going to find that standard deductions are going to be more beneficial for them. This is a result of not paying a full years worth of interest payments on your mortgage.

If you have lived in your home for may years, you are likely paying more towards principal than to interest. As a result, homeowners near the end of their loan term are not going get much of a tax break.

Any cost associated with my home are deductible
This is not true. For example, private mortgage insurance, association fees and property insurance costs are not deductible. You won't be able to deduct basic home improvements repairs and/or maintenance either.

If you attempt to write off any sort of home improvement, you will likely be hearing from the IRS. They will recalculate your taxes correctly, resulting in penalties, interest, and a higher tax bill.

Please note that it is important to keep track of all expenses incurred for repairs and improvements. If you decide to sell your property after making any sort of repair or conversions, the property's tax basis is going to be affected, i.e. turning your home into a rental property.

Money from the sale of your home has to be used to buy a another house
This used to be the sole method for avoiding a tax bill on the home that your selling. Even then, the only way to defer taxes was to buy a new home of equal or greater value with the earnings from your old home.

Once you sold your final home, long-deferred taxes that were rolled over the years are were due. It used to be that sellers 55 and older were entitled to a once-in-a-lifetime tax exemption of up to $125,000 in sale profit. However, on May 7, 1997, the home-sale tax law changed. Even a decade later, many people do not understand the tax implications of selling and still think that they are entitled to this exemption.

 

Selling your home still entitles you to a nice tax break. If you reside in your home for two of the years before you sell, you will not have to pay taxes on a sale profit of up to $250,000 if you're single or $500,000 if you and your spouse file a joint return.

Placing my child's name on the home's title is a wise decision
It is very common for people doing estate planning to put the home in the child's name. The intent of doing something like this is to avoid probate, keep the home in the family and get the property out of the parent's estate for those tax purposes. However, these actions are only going to generate tax problems for your children.

Only if the child decides to move into the newly deeded house with the parent and lives there long enough (two of the previous five years) to make the house the child's main residence, the child will not receive the $250,000 or $500,000 residential tax break when they decide to sell the home. The child's ownership is only going to be looked at as an investment property if the child does not establish primary residency in the home before the parent passes away.

Establishing joint tenancy is another instance when parents will choose to add a child's name along with theirs on the title to the house. This does not mean that all owners reside in the house, but merely that more than one person holds title to the property. Typically, when property in inherited, the property becomes worth its fair market value that day, thus increasing in value. However, if the child co-owns the property with their parent, the child will not be entitled to thee stepped-up basis. According to tax laws, it is considered a gift for the child when their name is added onto the title; resulting in half of the home ownership and half of the basis being received.

This is more commonly known as the property's carry-over basis and is very expensive. For example, suppose you purchased your property years ago and the basis in the home is $80,000. You add your son to the title. When you die, he will inherit half of the home which is now worth $300,000. They are offered $400,000 by a potential buyer for the property.

This may seem like a good deal from a real estate perspective. However, the tax bill of this sale can be quite surprising. Instead of owing taxes on just $50,000 more than the house's stepped-up market value, your son is going to owe on three times that amount. Here's the math:

 

Parent owns home with a basis of: $50,000
Parent adds child to title, "giving" child carry-over basis of: $25,000
At parent's death, house is worth $300,000, producing on the inherited half a stepped-up basis of: $150,000
Home subsequently sells for: $400,000
Child's total adjusted basis is:
(line 2 plus line 3) $175,000
Taxes due on sale profit of:
(line 4 sale price less line 5 basis) $250,000
Taxes to be remitted to the IRS:
(Sales profit of $250,000 x 15 percent long-term capital gains) $37,500

Although the intentions of the parent were for the best, the cost was ultimately very expensive for the child. 

I end up selling my home for less than what it is worth. I can write this off
Wrong. Like an asset, your home has the potential to rise and fall in value. The reason is because your home is considered personal property and you can not write off any sort of personal property.

On the contrary, you will have to pay taxes on any gains you earn as a result of selling your home.


                

 

Home | Apply NowCommon Questions | Contact Us 

Mortgages | Car Loans | Personal Loans | Debt Consolidation | Credit Reports | Credit Cards

Managing Money | Credit Help | Checking Accounts | Taxes

Personal Loan Information | Mortgage Loan ArticlesAuto Loan Articles
Credit Report Articles | Debt Consolidation Information | Credit Card Information

1998 Star Loan Services Inc.. All Rights Reserved. Privacy