Know the Tax Implications of owning a home!

Top 10 Tax Breaks From Buying/Owning/Selling a Home

1. Mortgage Loan Interest: Mortgage loan interest is deductible for both Federal and NJ State income taxes. Since interest makes up the largest portion of the monthly mortgage payment, especially in the early years, this deduction can result in a huge tax savings.

2. Property Taxes: Property taxes (the second largest piece of most mortgage payments) are also fully deductible. Between interest and taxes, almost all of a buyer's mortgage payment will be deductible in the early years of the mortgage.

3. Points: Points, when charged by lenders as part of the cost of the loan are deductible. You can deduct points associated with a home purchase mortgage, but not a mortgage broker's commission. Refinanced mortgage points are deductible too, when they are amortized over the life of the loan. If you refinance a second time, the balance of the old points from a refinanced loan offer an immediate write off, as you begin to amortize the new points.

4. Home Improvement Loan Interest: The interest on a home improvement loan is also deductible. You can deduct all the interest on a home improvement loan provided the work is a "capital improvement" rather than repairs, maintenance or cosmetic upgrades.

5. Moving Costs: A move required for a new job comes with some deductible moving costs. To qualify, you must meet certain requirements including, moving within one year of starting your new job, moving 50 miles farther from your old home than your old job was and working full-time at the new job for 39 of 52 weeks following the move. Deductions include travel or transportation costs and expenses for lodging and storing your belongings.

6. Energy Tax Credits: The newest home-based tax credits were made possible by the Energy Policy Act of 2005. Tax credits of up to $500 are available for upgrading heating and air conditioning systems, insulations, windows, doors and thermostats, caulking leaks, installing pigmented metal roofs and for otherwise decreasing energy waste in your home.

7. 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. This credit is available every year you keep the loanand live in the house purchased with the certificate. Unlike a deduction that reduces your income, the credit is subtracted, dollar for dollar, from the income tax owed.

8. 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. Included are a percentage of your insurance and repair costs, utility bills and depreciation.

9. 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, legal fees, advertising and inspection fees. Costs typically stemming from decorating or repairs -- painting, wallpapering, maintenance, and the like -- are also selling costs if you complete them within 90 days of your sale and with the intention of making the home more saleable.

10. Capital Gains Exclusion: The Home buying investors' best tax shelter comes from provisions in the Taxpayer Relief Act of 1997 which allows married taxpayers who file jointly to keep, tax free, up to $500,000 in profit on the sale of a home used as a principal residence for two of the prior five years.


THIS ARTICLE CONTAINS GENERAL INFORMATION
AND DOES NOT CONSTITUTE LEGAL ADVICE.

CONSULT YOUR CPA OR TAX PROFESSIONAL
FOR YOUR SPECIFIC SITUATION.