The following tax deductions and brief explanations are meant only to point out some of the possible money savings which may be available to you when owning and/or selling a property. As with everyone of us, we are individuals and each of our situations is very different. This list is not meant to imply these are the only ones available to all. Whether you can use any of these or there are others available to you is a question for your CPA and/or accountant.
1. Sale of Your Personal Residence Deduction
If you sell your home your allowed as individuals up to $250,000 profit deductible from the sale tax-free and $500,000 for married couples. As with all of these there are other considerations and rules which need to be met.
2. Mortgage Interest
Currently homeowners who itemize their deductions can deduct the interest paid on a mortgage with a balance of up to $1 million but there are income limitations that affect this. This is applicable to first and second homes only and if you have read or see any news lately, the $1,000,000 may be reduced.
3. Property Tax Deduction
The property taxes you pay are deductible. Homeowners should be careful to only deduct the amount of property tax actually paid to their local municipality for the year. One way to lower the property tax amount you pay is to file for a Homestead exemption. Here in California this is $7,000 and you must file for this with the county assessor in the county the home is in. The home must be your personal residence.
4. Private Mortgage Insurance (PMI)
The PMI deduction is only for those who have a mortgage requiring it and you loan was originated after January 1, 2007. The deduction is phased out again for higher income people and no guarantee how long this deduction will be permitted.
5. Mortgage Points/Origination
If you paid points, same as origination fees, on their home purchase or refinance, these are often deductible. On a home purchase loan, you can deduct the entire amount paid. On a refinance loan, the must be amortization over the life of the loan.
6. Energy Efficiency Upgrades/Repairs
The cost of energy efficiency upgrades to their home can be deducted most often as a tax credit. There are both federal and state credits so you need to check both. Here is a link to the Federal site and one for California.
7. Real Estate Selling Cost
These are generally fees paid at closing, capital improvements made to your home, money spent for repairs to a damaged property, and marketing costs necessary to sell the home.
8. Home Office
If you a qualifying home office you can get a tax deduction for it. The most important consideration is this needs to be legitimate, reasonable and the space must be used exclusively for business. The one downside, the amount you deduct for this can possibly be taxable when you sale your home.
9. Home Improvement Loan Interest
Interest on home equity loans used for “capital improvements” to a home can also be a tax deduction.
10. Loan Forgiveness
This is big subject but can be a huge tax savings for those who have had to do a short sale or have gone through a foreclosure It is covered under The Mortgage Debt Forgiveness Relief Act of 2007 but this will expire at the end of 2013 unless extended. One huge caveat here is state tax debt forgiveness which is passed on a state by state basis. California had done every year through 2012 and it is thought they will do so for 2013 but this will not happen till this summer at best. It is expected to retroactive but if for any reason it doesn’t get passed, this could be a big tax burden.
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