Owning a home is the Great American Dream! And it does come with certain tax breaks. Here are some tips to help you take advance of these and better understand your options.
Annual Tax Savings
When filing your tax return, a homeowner can take the following deductions annually:
- Amount paid in property taxes during the calen- dar year for any and all properties owned.
- The amount paid in interest on your primary mortgage as long as that mortgage doesn’t exceed $1,000,000, and the amount paid in interest on a secondary mortgage, as long as that mortgage doesn’t exceed $100,000.
- Thee amount of any casualty loss to your prop- erty that exceeds any insurance compensation received, subject to limitations.
Capital Gains Tax Savings
When you buy a residence then sell it later for a gain, the increase in value over basis is considered gain on sale, which is taxable as income to the homeowner. Taxpayers are allowed an exclusion on this gain of $250,000 per individual ($500,000 for a married couple ling jointly) when they sell their primary residence, whether or not they purchase another property. is exclusion is available every two years, and the caveat to this exclusion is that at least one spouse must use the home as a primary residence for 2 of the last 5 years. Some limitations apply to this exclusion and the IRS also allows mitigating circumstances on that 2 year limit in certain cases.
Keeping track of your capital improvements helps increase your home’s basis as those costs are added to your original purchase price. is new high- er basis value is what to use when calculating whether or not a gain upon sale has occurred.
It is always advisable to consult your CPA tax preparer as well as your experienced real estate professional before conducting your transactions.
