Homeowners’ Tax Myths That Are False
Mortgage interest reduces tax bills: Not for all; and it doesn’t work forever. Itemize your home loan’s interest and move toward a total that is more than your standard amount. Taxes increase a little bit every year to answer for inflation. Totals of mortgage interest, property taxes and other non-home deductions usually exceed the permissible standard deductions.
All home-related costs are deductible: Abrasively false. Association dues, property insurance, and private mortgage insurance are not deductible. For mortgages and policies originating or refinanced when the law changed regarding mortgage deductibles, between January 1, 2007 and December 31, 2009, insurance premium payments may be deducted. Basic maintenance, repair or home improvement expenses can’t be written off.
Using money from selling a home to buy another: You’ll owe long-deferred taxes that have rolled over through the years. The catch is living in the house for two of the five years before selling as this will get you a nice tax break. The law recompenses people who sell often. People who hold face circumstantially high tax bills if the gain exceeds the exclusion and may end up owing alternative minimum taxes.
A child on the home’s title is a smart tax move: A good intention that carries out a more complex estate tax area; a tricky myth to fall for, combined with confusion about residential taxes. The child should establish primary residency in the house; otherwise, he/she won’t get the $250,000 or $500,000 residential tax break. In inheritance, the property has fair market value. Joint ownership creates tax complications. This becomes a gift that has a carry-over basis that is very expensive.
Write off capital loss when a home is sold: Just as wrong as the number two tax myth. Selling your main residence for less than what you paid for it will not create a write off.
Fact or fiction, you now know the difference to help you make proper real estate and tax decisions when the time comes.