Tax Tips for Homeowners
Home ownership gives a person a sense of pride, a place of refuge against the world and a family a place to come together. However, home ownership has the added advantage of allowing the homeowner to take advantage of deductions on their personal income tax and also to sell their property at a gain without paying capital gains taxes.Annual Tax Savings
When filing the annual income tax statement, the homeowner can take the following deductions:
- The amount paid in property taxes
- The amount paid in interest on your mortgage
- The amount of any casualty loss to your property to the extent not compensated by insurance.
When a person buys something and then sells it later for more money, the increase in value since the time he purchased it is considered gain which is taxable as income. However, your home has been given an exclusion from capital gains taxes with the passage of The Taxpayer Relief Act of 1997.
In the past a homeowner was required to purchase a new replacement home of equal or higher value in order to escape paying taxes on the capital gain earned on their primary residence. If you did not meet these requirements, homeowners were required to prove the tax basis of the property when purchased and show proof of capital improvements through receipts for the improvements. The Taxpayer Relief Act of 1997 threw out the rollover requirement.
Taxpayers are now allowed an exclusion from paying capital gains taxes on gain of $250,000 ($500,000 for a married couple) when they sell their primary residence, whether or not they purchase another property. This exclusion is available every two years. Some limitations apply to this exclusion, and the IRS allows mitigating circumstances for the two years limit.
It is important to consult experienced your real estate attorneys prior to signing your contract for the sale of your property to determine if it meets the federal requirements to allow you your homeowner's exclusion from paying federal capital gains taxes. Vicki Gonzalez of the law firm of Bellas & Wachowski Attorneys at Law has the experience to advise and assist consumers with this complex and difficult transaction and to make it as stress free as possible.