Tax Advantages of Home Ownership
Home ownership offers some significant tax advantages
a homebuyer may not be aware of if he or she has never owned a house. Advantages
come in the form of annual deductions from taxable income each year and in
tax savings when the house is sold. Home ownership is so important to the
health of our economy and our society, the federal government is willing to
make buying a home more affordable for homebuyers.
Mortgage Interest Deductibility
The interest that is paid on a mortgage and property taxes are deductible
from taxable income when it's time to pay income taxes. In the early years
of a mortgage, most of the mortgage payment goes to interest and taxes, so
for many homeowners the savings really add up. Mortgage interest is the largest
single deduction available to most taxpayers. In some cases, that deduction
can make owning a home more affordable than renting.
Tax Savings In Selling
One of the most important tax advantages is fairly new. Legislation in 1997
exempted the sale of a primary residence from capital gains tax. Let's say,
for example, a person has lived in a house for twenty years. The homeowner
paid $50,000 for it in 1979 and now he or she can sell it for $300,000. In
the past this person would have had to buy a more expensive house or pay capital
gains tax on the $250,000 profit when the home was sold. Now homeowners don't.
Gains from the sale of a house are tax free up to $250,000 if single tax return
is filed or up to $500,000, if a joint tax return is filed. This is especially
good for people who are thinking about downsizing because their families have
grown, or those who will be moving to a place where housing is less expensive.
They can sell your house here, buy a less expensive one somewhere else and
keep the leftover cash. Under the old law there was a once-in-a-lifetime opportunity
to do that, but the homeowner had to be 55 years or older.
Now there is no age restriction. If someone would like to sell their home,
they don't have to wait until they are 55 to get a tax break. In fact, a tax
break can be taken every two years if the house that is sold is a primary
residence. Essentially, it makes a house a tax-free investment. With house
prices beginning to escalate, this tax break could become quite important.
These are just some general examples to help people understand the benefits
of home ownership. Only a tax advisor can describe precisely what home ownership
will mean to each homeowner.
For more information please call Howard Moradi at 201-585-3553
