The questions often arise if a Buyer or Seller can claim certain “items” on their taxes from the purchase or sale of their primary residence. These deductions are designed to be valid for the primary residence, some of these MAY BE applicable for investment properties and some MAY NOT.
Visit the Internal Revenue Service's website (www.irs.org) for more details on each item.
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Mortgage Loan Interest: For the new home owner this is the primary tax deduction due to the fact that interest payments comprises a large portion of your mortgage payment in the early years of the loan's term.
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Home Equity Line Of Credit (HELOC): Similarly, the interest on a HELOC loan is also deductible, but must be calculated differently than the interest from your primary mortgage loan.
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Points: One point is one percent of the loan principal amount you acquired for the purchase of your home. All points charged by lenders as part of the cost of the primary loan can fully be deducted on your taxes; as well as, discount points charged by your lender.
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Real Property Taxes: The Real Estate Property Tax that you have actually paid is deductible from your taxes. Real Property Taxes that are due but not paid or delinquent due to non-payment are not able to be deducted.
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Mortgage Tax Credit: Mortgage Credit Certificates (MCCs) allow qualifying low-income, first-time home buyers to take a mortgage interest tax credit of up to 20 percent (the amount varies by jurisdiction) of the mortgage interest payments made on a home.
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Capital Gains Exclusion. The Taxpayer Relief Act of 1997 which allows married taxpayers who file jointly to keep, tax free, the capital gains on the first $500,000 on the sale of their residence; similarly, single tax payers get the same benefit on the first $250,000 of capital gains. The other stipulation is that you must reside in the property 24 out of 60 months, although not consecutively to earn these capital gains deduction.
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Selling Costs and Capital Improvements: When you sell your home, you can reduce your taxable capital gain by the amount of your selling costs, which include real estate commissions, title insurance, legal fees, advertising and inspection fees and any other fee that is required to “get” to the sale
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Moving Costs: A move triggered by a new job comes can come some deductible moving costs.
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Home-Based Business Deduction: Home offices that use a portion of your home exclusively for business could qualify you to deduct a percentage of costs related to that portion.
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Energy Tax Credits: There are numerous energy tax credits available on all kinds of home improvement items. New windows, a new furnace, water heaters are just a few items that may allow you to claim a certain percentage of the purchase price as a deduction on your taxes. New “green” products can also be a great deduction via Government mandates, energy savings while adding peace of mind to your Buyers as well.
Please note that I am NOT an accountant and this information should be verified by your personal CPA if you need to use any of these strategies in your State.
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