Buying
Top Ten Tax Breaks For Your Home
Your home offers a score of tax deductions and credits designed to help offset the cost of housing and to keep the housing market fueled with new buyers. Some federal-level politicians would like to separate you from some of those benefits and they may or may not be successful, so take advantage of them while you can.
1. Mortgage Loan Interest
We pay a lot of interest in the first few years of a mortgage and this is the mother of all write offs. You can deduct all the interest you pay on your loan for the year for loans under $1 million filed jointly and half of that if you file single. Home equity loans interest is also deductible up to $100,000 for couples filing jointly and one half of that if you are single.
2. Home Improvement Loan Interest
The interest on a home improvement loan is also deductible, but calculated differently. You can deduct all the interest on a home improvement loan provided the work is a “capital improvement” rather than repairs, maintenance, or cosmetic upgrades. Capital improvement typically increase a home’s value: a room addition, a new roof (prolonging the life), or adapt it to new uses (universal design improvements to assist older people or people with disabilities). You get tax benefits from repair work (painting, repairing, etc.) only when you sell your home but you can use a home equity loan to make repairs and deduct the interest-up to the limits.
3. Points
Points, each equal to 1 percent of the loan principal, are charged by lenders as part of the cost of the loan. You can fully deduct points associated with a home purchase mortgage, but not a mortgage brokers commission. Refinanced mortgage points are deductible too, only when they are financed.
4. Property taxes
Property taxes or real estate taxes are fully deductible.
5. Capital Gains Exclusion
Home buying investors’ best tax shelter is one that allows married couples who file jointly to keep, tax free, up to $500,000 in profit on the sale of a home used as a principal residence for 2 out of the last 5 years. Under $250,000 for those of us filing separately.
6. Home-Based Biz Deduction
Home offices that use a portion of your home exclusively for business could qualify you to deduct a percentage of costs related to that portion. Included are a total of your insurance and repair costs, utility bills and depreciation. If you sell your home you may have to recapture tax if you have taken a depreciation deduction due to your home based biz.
7. Selling Costs and Capital Improvements
When you sell your home you can reduce your taxable gain by the amount of your selling costs, which include real estate commissions, title insurance, legal fees, advertising and inspection fees. Cost typically stemming from decorating or repairs-painting, wallpapering, planting flowers, maintenance, and the like-are also selling costs if you complete them within 90 days of your sale and with the intention of making the home more salable.
Selling costs are deducted from your gain. Selling costs are only relevant if you will have to pay capital gains when selling your home (investment prop. or you lived there less than 2 years).
8. Moving Costs
A move triggered by a new job comes with some deductible moving costs. To qualify, you must move within 1 year of starting a new job as well as some other criteria. Deductions include travel or transportation costs and expenses for lodging and storing your household goods.
9.Mortgage Tax Credit
Mortgage tax certificates allow qualifying, low income, first time homebuyers to take a mortgage interest tax credit of up to 20% of the mortgage interest payments made on a home. Unlike a deduction that reduces your income, the credit is subtracted, dollar for dollar from the tax owed. The remaining 80% of your mortgage interest is taken as a normal mortgage interest deduction.
10. Energy Tax Credits
The newest home based tax credit were made possible last year by the Energy Policy Act of 2005. Tax credits of up to $500 in 2006 and 2007 are available for upgrading heating and air conditioning systems, insulations, windows, doors and thermostats, caulking leaks and for otherwise putting the bite on energy waste in your home.
You should always consult your accountant before making any tax related decisions or for any additional questions. After all, we are just lousy Realtors.
