Tax breaks for the homeowner
It tiptoed up on us again, the patter of little income tax brackets and deductible expenses quietly moved into our home offices even before we shredded the holiday charge receipts. The 2008/2009 tax season is upon us. This past year may not have been the time to boast about the attributes of home ownership, but in spite of lost appreciation and beaten down confidence, owning real estate is still advantageous when April 15 rolls around.
The United States tax law encourages homeownership through a series of potential tax breaks for those of us who have owned homes for a number of years, as well as those who have taken the plunge even in a not so great market. Deducting the interest on your mortgage is for most homeowners the single most advantage in owning a property with a mortgage.
You can deduct up to $1 million in interest on your principal and/or second residence as well as deducting up to $100,000 of home equity debt incurred. In addition, if you incurred points to secure an original home mortgage or in connection with the refinancing of a mortgage on your principal residence or second home, these points may also be fully deducted in the year they were paid.
First time homebuyers also have tax advantages in the form of tax credits, even though they don’t really have to be first time owners. A first time buyer is defined as someone who has not owned a principal residence during the three years before a home purchase. Prior to the new federal stimulus bill being enacted the credit was up to $7,500 for properties purchased between April 8, 2008 and July 1, 2009. However, the new legislation raises that limit to $8,000 for properties purchased before Dec. 1 of this year.
The new legislation also includes tax credits for the installation of energy efficient windows, furnaces and air conditioning systems. The credits are up to 30 percent of costs with a maximum credit of $1,500.
The second biggest advantage of homeownership is the ability to deduct annual property tax on real property. If your mortgage lender pays your property taxes, this amount will be included on your year end statement. If not it’s up to you to keep good records.
If you are selling your home and were lucky enough to make a profit, all or part of the gain may be tax free. The maximum exclusion is $250,000 for individuals and $500,000 for married couples filing jointly. A surviving spouse is eligible for the $500,000 exclusion as long as it is within two years of the spouse’s death and the surviving spouse has not remarried.
This exclusion is available only once very two years and you must have owned and used the home as a principal residence for at least two of the five years immediately before the sale. There are some exceptions to this time line rule based on particular hardships, like health and job transfers.
If you own and rent properties, like so many on Anna Maria, you may deduct rental expenses. However, you also have to report the rental income and you are limited to the number of days you as the owner may use the property. There are very complicated IRS rules relative to write-offs on investment rental properties that must be explained by an accountant or CPA.
Don’t get caught short without sharpened pencils and mortgage statements on April 15. Embrace your homeownership and make the most of what it costs you to be the owner of real property. It’s one of the few advantages the average person has over the government, I think.