Home Buying
Tired of giving money to a landlord? Invest your money in home ownership, and reduce
your taxes at the same time. Welcome to home ownership, the closest you may ever
get to a "sure thing" investment. Not only does buying a home give you a place to
call your own, it's also a great way to reduce your income taxes. The qualified
mortgage interest you pay and your real estate taxes are both deductible. That's
not to mention that with a little luck and a reasonable maintenance policy, most
homes increase in value over time.
Know All Your Deductions
With the purchase of your first home and the new deductions it brings, you will
likely be eligible to change from using the standard deduction to itemizing deductions
on Schedule A. That means you will need to keep records of other available itemized
deductions. Among the more common itemized deductions are:
- Medical and dental expenses
- State and local income taxes
- Personal property taxes (usually on your car)
- Gifts of cash and property to qualified religious and charitable organizations
- Casualty and theft losses
- Employment-related expenses
- Tax preparation fees
- Investment expenses
- Gambling losses to the extent of your winnings
Note: Some of these deductions are subject to limitations, so follow the directions
for Schedule A carefully.
Interesting Facts about Interest:
Mortgage interest you pay on loans up to a million dollars ($500,000 if you use
the married filing separately status) is deductible, provided you used the money
to buy, build, or improve your home.
Mortgage interest you pay on loans secured by your home and used for a purpose other
than to buy, build, or improve your home is deductible for loans up to $100,000
($50,000 if you use the married filing separately status) or to the extent of your
home equity, whichever is less. As you gain equity in your home, use these lines
of credit wisely: If you fail to make the payments, you put your home at risk.
Lastly, let's not forget points, also called loan origination fees. One point equals
one percent of your loan. Points you pay (and even points the seller pays) when
you purchase your home are generally deductible in full the year you pay them. Alternatively,
you may amortize the points over the term of your mortgage. The wise choice is usually
the immediate deduction, but not always. A tax professional can help you decide
which treatment is better for you.
Moving on Up
When you decide to move on up to bigger and better things, Uncle Sam allows you
to exclude from taxable income gains on the sale of your home up to $250,000 ($500,000
if you file jointly with your spouse). You generally may claim this exclusion only
once in any two-year period. A loss on the sale of your home is, however, not deductible.