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Buyers and sellers need to be informed about tax considerations before entering a transaction. If you have purchased or sold a home last year, there are a number of tax deductions for which you may qualify. Here are some important factors to keep in mind: Profitability: According to the IRS, if you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income as a single tax filer, or $500,000 on a joint return in most cases. Interest: Currently, much of the interest paid on a mortgage is tax-deductible. A married couple filing jointly can deduct all of their interest on a maximum of $1 million in mortgage debt secured by a first or second home. Selling costs: Broker commissions, title insurance, legal fees, advertising costs, administrative costs, and inspection fees are all considered selling costs and currently may be used to reduce one’s taxable capital gain by the amount of the selling costs. Refinanced mortgage points: They may be deductible, but not all at once. Homeowners who refinance may be able to immediately write off the balance of the old points and begin to amortize the new points. Interest paid on a home equity loan or similar line of credit may also be deducted. Points/origination fees: On a home loan, if points or origination fees are paid during the purchase of a home, they are currently generally tax-deductible for the year in which they were paid. Repairs/remodels: Qualifying capital improvements may be able to be deducted, including costs of a new roof, fence, swimming pool, garage, porch, built-in appliances, insulation, heating or cooling systems and landscaping. Relocation expenses: If you move because of a new job, you may be able to deduct some of your moving costs. To qualify for these deductions, you must meet several IRS requirements, including that your new job is at least 50 miles farther from your old home than your previous job. Moving-cost deductions can include travel or transportation costs, lodging expenses, and fees for storing your household goods. Property taxes: Currently deductible from your income. If you have an impound or escrow account, you can’t deduct the money held for property taxes until the money is actually used to pay your property taxes. City or state property tax refund reduces your federal deduction by an equal amount. First-time buyer credit: For those buyers who took advantage of this credit within the past two years, remember that if within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Another important tip for those moving into a new home is to make sure you update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Tax laws change every year, and certain tax deductions become available while others phase out. Speak with a professional tax consultant about these and other considerations. |
