Your home shelters you from the elements, but it is also a valuable tax shelter.
Your home provides many tax benefits -- from the time you buy it right on through when you decide to sell. Here's a summary of the tax benefits of home ownership; you can get details by visiting the IRS website at www.irs.gov.
1. Mortgage Interest
Joint tax filers can deduct all the interest on a maximum of $1 million in mortgage debt secured by a first and second home. The maximums are halved for married taxpayers filing separately.
2. Points
Your mortgage lender will charge you a variety of fees, notably what are called "points." You can fully deduct points associated with a home purchase mortgage. You cannot deduct a mortgage broker's commission.
3. Equity Loan Interest
You may be able to deduct some of the interest you pay on a home equity loan or line of credit. However, the IRS places a limit on the amount of debt you can treat as home equity debt for this deduction.
4. Home Improvement Loan Interest
If you take out a loan to make substantial home improvements, you can deduct the interest on this loan. There is no dollar limit on this deduction. However, the work must be a "capital improvement" rather than ordinary repairs.
5. Property Taxes
Often referred to as "real estate taxes," property taxes are fully deductible from your income.
6. Home Office Deduction
If you use a portion of your home exclusively for business purposes, you may be able to deduct home costs related to that portion, such as a percentage of your insurance and repair costs, and depreciation.
7. Selling Costs and Capital Improvements
If you decide to sell your home, you'll be able to reduce your taxable capital gain by the amount of your selling costs.
Real estate broker's commissions, title insurance, legal fees, advertising costs, administrative costs, and inspection fees are all considered selling costs.
8. Capital Gains Exclusion
This is a true tax shelter for those who are treating home buying as an investment. Thanks to the Taxpayer Relief Act of 1997, many home sellers no longer suffer a taxable gain. Married taxpayers who file jointly now get to keep, tax free, up to $500,000 in profit on the sale of a home used as a principal residence for two of the prior five years. Single folks and married taxpayers who file separately get to keep up to $250,000 apiece tax free -- including single people who own a home jointly.
9. Moving Costs
If you move because you got a new job, you may be able to deduct some of your moving costs. To qualify for these deductions you must meet all requirements, which get more and more complicated as you read on:
10. Mortgage Tax Credit
A home-buying program called mortgage credit certificate (MCC) allows low-income first time homebuyers to benefit from a mortgage interest tax credit of up to 20% of the mortgage interest payments made on a home (the amount of the credit varies by jurisdiction).
Source: NOLO.com
Wednesday, December 21, 2005
Top Ten Tax Deductions for Owning Your Home
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