House is treasure trove of tax benefits Buying, owning, selling all offer benefits, as do equity loans By Mary Dalrymple Associated Press Originally published January 18, 2004 Energized by the lowest mortgage interest rates in must not be charged in place of the fees and taxes more than 40 years, home sales and refinanced typically due at closing. loans moved at a record pace last year. The bustling mortgage activity means more taxpayers Some taxpayers might qualify for a tax credit that must master the complex rules that help covers a portion of mortgage interest. Low-income homeowners win big tax advantages. taxpayers should contact their state or local government to find out whether they qualify and "It's tax-favored in a number of different ways," secure a "mortgage credit certificate" before said Bernard Kent, a personal financial services obtaining a mortgage. partner at PricewaterhouseCoopers. Home owning. Homeowners can expect to get The benefits of homeownership stem from tax statements from their lenders showing deductible deductions for home expenses including mortgage interest paid during the year. That deduction is the interest and real estate taxes. When the total of biggest benefit available to most homeowners. those costs and other deductible items amounts to more than the standard deduction, it can mean a What many don't know is that other mortgage big tax bonus for homeowners. costs can also be deducted, including late payment charges and early payment penalties. Interest paid If taxpayers find their deductions exceed the in advance is not immediately deductible. standard amount, they should itemize them on Schedule A. The standard deduction for 2003 is Real estate or property taxes paid during the year $4,750 for single people and $9,500 for married are also deductible. Charges for city services such couples. as water and garbage pickup do not count as deductible taxes. Nor do homeowner dues. In most cases, the biggest tax advantage of homeownership is the mortgage interest Home selling. The sellers can keep up to deduction. Taxpayers can also deduct some of the $250,000 of capital gains tax-free if they owned costs of buying, owning and selling a home. and lived in the home as their principal residence for two of the five years before the sale. That Vacation homes, home equity loans and home- amount is doubled to $500,000 for married based businesses come with their own sets of couples. complex rules: Some fees paid when purchasing a house can be Homebuying. Buying a home means taxpayers recouped by adding them to the basis, the starting can start to capitalize on mortgage interest and real point for figuring gain or loss when selling the estate tax deductions. The closing statement home. prepared for the purchase includes most of the information new homeowners need. Many of the Any long-term gain exceeding the tax-exempt costs paid at closing aren't deductible, including limits would be taxed at a maximum rate of 20 fees for an appraisal, notary services and percent if the house was sold before May 6, 2003. preparation of the mortgage note or deed. Lawmakers lowered the top capital gains rate to 15 percent as of May 6, 2003. Points, the fees a bank or lender charges a borrower, might be immediately deductible. The Refinancing. Homeowners who refinanced points must meet certain requirements, and they their mortgages to take advantage of lower interest rates should keep in mind that their tax advantage equity loans used for personal consumption, such might shrink along with their monthly payment. as a new car, college costs and credit card debt. But taxpayers with income of more than $139,500 Unlike many homebuyers, homeowners who might be limited in their itemized deductions, refinance their home loans cannot immediately including their mortgage or home equity interest. deduct points paid. The points must be spread over the life of the loan. For example, if a homeowner Mortgage interest on a vacation home is generally paid $2,000 in points on a 15-year refinancing deductible, but the situation gets more mortgage (180 payments), the homeowner could complicated if the home is rented out more than deduct $11.11 a month, a total of $133.33 for the 14 days during the year. 12 payments during a year. Taxpayers then need to look closely at the rules If a portion of the refinanced mortgage is used to for vacation property and rental property. pay for home improvements, the homeowner may generally deduct the points associated with the An entrepreneur or telecommuter might be able to home improvement that year, spreading out the deduct the costs of a home office if a portion of remainder over the life of the loan. the home is used regularly and exclusively for business. The expenses typically include a portion Other loans. The interest on up to $100,000 of of rent, depreciation, repairs and utilities. The equity loans secured by a taxpayer's primary home rules are complicated, and a separate form must be is deductible in most cases. That includes home filed to claim home office deductions. This article is forwarded as a courtesy of Byrne Cohen & Hyatt real estate. Please consult your tax preparer or counselor as to which, if any, of these benefits apply to your individual situation. Byrne Cohen & Hyatt 110Realty.com posts articles it believes will be of interest to our clients. The articles are from outside sources and do not necessarily reflect the viewpoint of Your Realtors. Keep in mind that many real estate articles are written at a national level, and All Real Estate is Local!
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