Aid Your Taxes Next Year By Becoming a Homeowner

Image Credit: TaxCredits.netThere plenty of reasons we become homeowners. Some do it because owning real estate is considered the #1 top investment. Some do it to start a family. Some do it because they're sick of the renter's trap.

Whatever reason rings true for you, home ownership can and does pay off, big time.

Around this time of year, as we diligently (and begrudgingly) do our taxes, many who became homeowners or relocated in the past year discover a nice surprise - a substantial tax break awaiting them.

Here are some ways that home ownership can benefit you during tax season, as reported in Zillow. Keep in mind that we are real estate professionals, and not tax accountants.  You should always consult your account, and not just take our word for it!

Mortgage Interest

Home ownership usually begins, for the vast majority of buyers, with a mortgage. This mortgage payment is comprised of both principal (money that pays down the loan) and interest (what the lender charges for supplying the loan).

The federal government provides a tax benefit when it comes to the interest of your loan.  As a homeowner, you can write off the interest portion of your mortgage payment.

Here's an example. Say your annual salary is $100,000 and your mortgage payment is $1,200 a month, with the interest portion of that payment being $1,000. At the end of the year, you would have a $12,000 tax write off, which reduces your taxable income to $88,000.

Capital Gains

If you were a homeowner who relocated from one home to another, selling the former, you get a tax break there. If you purchased a home for $200,000 and then sold it for $400,000, you have a $200,000 gain (aka income).

Assuming you also have income through a job, contract position, or sale of stock/mutual funds, you're probably well aware that you pay income tax on that gain. With home ownership, however, its different.

Say you're single and have lived in your previous home for at least 2 of the past 5 years, you don't have to pay any income tax whatsoever on that $200,000 gain, and wouldn't have to pay gain up to $250,000. Married couples are exempt up to $500,000.

Essentially, in selling your home, you're able to generate income without having to be taxed on it. This is a substantial break.

Moving

Did you know you can also generate tax credits for moving? If you purchase a home in one state and sell in another, be sure and check with a CPA in both states. There are often benefits realized in one state but not the other - like tax credits for moving expenses, for example, especially if the move pertains to a job transfer.

Keep in mind that the year that you are between states, you will need to file a return in both states. Be sure to check with a CPA before a real estate transaction, regardless.

Questions? Planning ahead for your 2015 taxed year? We'd love to chat with you! Don't hesitate to send us an email or give us a call.

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