last-minute
real estate tax tips
Early spring's budding trees and blossoming
flowers signal a warning alarm for the thousands of Americans
who have waited until the last minute to file their federal tax
returns. If you're one such "late bloomer", here are some real
estate-related tax deductions and credits to mull as the Ides of
April draw near.
Owners
Mortgage Interest - Most homeowners will be able to deduct all
of their home mortgage interest for the year. For married
couples filing jointly, mortgage interest is deductible for
loans with of $1 million or less (the figure is $500,000 or less
for those who are married and filing separately). In order to
take a home mortgage interest deduction, the property must be
either the primary home or a second home not used as a rental
during the year.
Home Improvement Loan Interest - Interest on home improvement
loans is deductible without a set dollar limit, provided that
the money is used to finance "capital improvements" to the
property. "Capital improvements" are those that add to the
home's value, significantly prolong its life or adapt it to new
uses.
Property Taxes - Property or "real estate"
taxes are fully deductible from taxable income. City or state
property tax refunds will reduce the federal deduction.
Home Office Deduction - If an area of the home is used
exclusively for business purposes, one may be able to deduct
home expenses related to that area.
Sellers
Capital Gains - Home sales have become a real tax haven since
the inception of the Taxpayer Relief Act of 1997. Up to $250,000
(if single or a married couple filing separately) or $500,000
(if filing jointly) of profit of a home sale is tax-free if the
home has been a primary residence for at least two of the last
five years.
Moving Costs - If asked to are relocating to begin a new job, it
may be possible to deduct some moving costs. Qualifying for
these deductions can be complicated; but if the requirements are
met one can deduct the cost of travel, storage or lodging.
Selling Costs and Capital Improvements - The amount of selling
costs - including broker's commissions, legal fees, and
inspection fees - can be deducted from the capital gain of the
home sale. Decorating or repair costs can also be deducted if
the work is done within 90 days of the sale and for the purpose
of making the home more marketable.
Buyers
Points - The "points" charged by a mortgage provider for a new
home purchase, which can easily total thousands of dollars, are
fully deductible. Commission charged by the mortgage broker is
not deductible.
Mortgage Tax Credit - A program called the Mortgage Credit
Certificate (MCC) gives low-income first time homebuyers a tax
credit of up to 20% of the interest payments made on the home.
The credit is available each year the buyer keeps the loan and
lives in the house purchased with the certificate. The remaining
80% of the interest can be taken as a mortgage interest
deduction.
More Information
For more information on real estate-related income tax credits
and deductions, visit the IRS website at
www.irs.gov. Among the
most useful documents:
* Publication 530: Tax Information for First-Time Homeowners
* Publication 523: Selling Your Home
* Publication 527: Moving Expenses
* Publication 587: Business Use of Your Home
* Publication 936: Home Mortgage Interest Deduction
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