For Sellers / Tax Info

Tax Benefits of Owning a Home

Buying a home is the biggest investment many people ever make. And
it can be the wisest, due partly to a number of tax advantages
the government has instituted to encourage home ownership. These
benefits can help reduce the cost of buying and owning a home and
also leave you with more money when it’s time to sell. Because
tax rules vary based on income and other factors, you should consult
an accountant or financial advisor for advice on your particular
tax situation.

Mortgage Interest

form 1040One of the biggest incentives to owning a home is that the interest
you pay on your mortgage is tax-deductible, up to a limit of $1
million. This deduction, like most other tax breaks for homeowners,
applies to any kind of home. That includes a second home, as long
as you spend a certain amount of time there: either 14 days each
year, or 10 percent as much time as it’s rented. In addition, you
can deduct the interest on up to $100,000 of other debt that uses
your home as security — for example, a home equity loan. However,
the amount you can deduct may be limited if the money you borrow
raises your debt above the home’s actual market value. This can
sometimes happen when a lender extends you a loan based on more
than the value of the house. You can also deduct any amount you
pay for points to reduce the interest rate of your mortgage or
other loan linked to your home. In most cases, the points on a
mortgage to buy or build your principal home can be deducted fully
in the first year. However, if you refinance, take a home equity
loan, or a loan secured by a second home, the points must be deducted
over the life of the new loan. The exception is if you use part
of a refinanced mortgage to improve your house; that portion of
the points can be deducted in the same year.

Tax-Free Profits

Another major advantage of home ownership is that, in most cases,
you don’t have to pay taxes on any profit you make when you sell
your home. The law allows you to exclude from taxes up to $250,000
in profit from the sale of your principal home — $500,000 for
a couple who file jointly. This exclusion also covers the sale
of a parcel of land adjacent to your house, unless it’s used for
business. There are some stipulations, however. The home must be
your principal residence, and you (and your spouse, where applicable)
must have lived there for at least two of the previous five years.
You can only claim the exemption once every two years. If you don’t
meet those requirements, you may still claim a partial exemption
if the sale was due to a change in your place of employment, necessary
for health reasons, or due to other unforeseen circumstances.

Property Taxes

You can claim property taxes you pay as an income tax deduction.
This applies to both your principal home and any others you may
own. Any money held in escrow to pay future taxes, however, is
not deductible. Moving expenses The government allows you to write
off many of your moving costs when you buy a new home if it’s at
least 50 miles closer to your job than your old home. To qualify,
you must continue to work full-time in the general area of your
job for 39 weeks during the following year. If you’re self-employed
and work in your home, any move of 50 miles or more will make your
moving expenses deductible. However, you must also work full-time
near the new location for 78 weeks during the next 24 months. Of
course, because tax rules vary based on income and other factors,
be sure to consult an accountant or financial advisor about your
particular situation

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