April 15 is on the horizon
A week ago, we fast forwarded our clocks one hour to begin the annual event of daylight-savings time. It seems like every year I dread this weekend, not only do you lose an hour’s sleep but the cumulative hours lost over your lifetime could add up to two or three days, or if you have really good genes, four days. In addition, by coming in March, it also brings you one hour closer to April 15, and who needs that?
Everyone wants to talk about why the government isn’t doing more to get us out of the housing crisis. The fact is that the government has always given what amounts to government subsidies to citizens who own their own home, and has during the last two years sweetened the pot even more.
Mortgage interest has been deductible from annual income tax filings since 1913 and isn’t about to change any time soon. If you combine this number with the property tax deduction, which in some areas of the country is very substantial, most homeowners benefit a great deal from owning their home. These deductions are also applicable to second homes, encouraging tax payers to buy rather than rent vacation properties. Even mortgage interest on boats can be tax deductible if they qualify as a second home.
Interest up to $1 million of debt can be deducted as well as interest paid on up to $100,000 of home equity debt. And certain points or prepaid interest in connection with a home mortgage refinance can be deducted.
If you rent your personal residence for fewer than 15 days during year, the income from this rental is tax-free, but expenses associated with the rental are not deductible. However, if you establish your property as an investment income producing property, expenses are deductible and conversely income must be declared.
More recently, the $8,000 first time homebuyer tax credit, defined as a buyer who has not owned a principal residence during the three year period prior to the purchase, is still in effect for real estate contracts written until April 30, 2010, and closing on the home purchase on or before June 30, 2010. This refundable credit is a dollar for dollar reduction of your income tax liability. Restrictions involve only homes purchased within the United States. Homes must be your primary residence, not a rental or vacation home, and the purchase price can’t exceed $800,000.
The government has also established a credit that now benefits long time homeowners with a tax credit of 10 percent of the purchase price up to $6,500 for existing homeowners who purchase a new residence. Again this credit applies only to principal residences where the homeowner has lived for five consecutive years.
Both of these tax credits can be applied for on your 2009 tax return, giving you the benefit of the credit a full year ahead, primarily designed to give the economy a bump. Please remember that tax codes are complicated, and professional help is recommended. The information provided is meant to be only a broad outline of the tax benefits of owning real estate.
Getting an hour closer to the April 15 tax deadline may not make you happy, but capitalizing on advantageous tax codes related to the ownership of property should help a little. Thankfully, daylight saving-time and tax filing deadlines are only once a year. I guess we can live with that, especially if we live a long life.