House is treasure trove of tax benefits by arnold1


									                      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 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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