Tax Benefits Of Purchasing Or Selling A Home | Credit Cards

Buying or selling a home has a lot of tax benefits which a lot of homeowners don?t know of. Owning a home can be profitable because a house is really an investment if only a homeowner treats it as one. The government provides a lot of tax benefits in order to entice the citizenry to own a home. Tax benefits can provide great savings when a person purchases or sells a home. However, these tax benefits do have a lot of conditions and restrictions therefore it is but proper for a person to consult an accountant or financial advisor in order to understand the opportunities and benefits of these tax benefits.

One of the tax benefits of owning a home is that the mortgage interest on the primary residence is considered an itemized deduction on the federal Income Tax Return. This is possible when the mortgage is secured by the house. However, not all mortgage interests are tax deductible. A mortgage interest can qualify as a tax deductible if the house mortgage is more than $1M. If the home mortgage is $500,000 and the homeowner is married but the couple files their taxes independently then the mortgage interest can also qualify as a tax deductible.

In general, home improvements or repairs are not tax deductible but there are certain home improvements which can qualify as a deductible. A home repair or improvement which will add value to one?s home can qualify as a deduction. Home improvements like adding another bathroom, covered porch, or swimming pool can qualify as a deductible. Home remodeling can also be eligible as tax deduction.

The tax effect of purchasing a new home through a mortgage can be confusing because there are closing costs which can be tax deductions. Costs charged by the lender can form part of itemized deductions if the costs are deducted within the year the house is bought. It is also possible for a seller to benefit from those costs as a tax deductible. If a mortgage is taken to refinance a home, the costs or points charged by the lender can be deducted proportionately every year. However, if a part of the mortgage is used for home improvement of the principal residence then the points can only be deducted on the year such points are paid.

A homeowner who decides to sell his home, the capital gains can be excluded from the taxable income either partially or completely. A capital gain on a primary residence up to a maximum of $250,000 can be excluded from the federal income tax if the homeowner is filing single. If the homeowner is married and files a joint tax return then a maximum of $500,000 capital gain can be excluded from the federal income tax. However, this can be taken advantage of only once every 2 years. The primary residence must be used for at least two years up to 5 years before the capital gain can be excluded. However, if the reason for selling the primary home is due to health reasons, unforeseen circumstances, or changes in employment location, the capital gain can still be excluded from the federal income tax but on a pro-rated basis.

Source: http://www.cardcredit.net/tax-benefits-of-purchasing-or-selling-a-home/

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