Home ownership can be the ultimate tax shelter. The Internal Revenue Code recognizes a number of tax benefits for real property owners.
One of the most significant tax deductions is the interest paid on a real estate loan used to purchase your primary residence. For example, if you paid $1200/month in mortgage interest, you can deduct, depending on your tax bracket, up to $11,500 a year. State and local property taxes are also deductible, as well as certain loan origination fees or points incurred at the time of purchase.
Expenses for permanent improvements to you home, such as installing air condition, a swimming pool or handicap ramps, because of a medical condition (prescribe in writing by your doctor) may be partially deductible. If you move more than 50 miles away because of a new employment opportunity, your moving expenses may be deductible. If you home is built on leased land, IRS sections 163 allows for deduction for lease payments. The ground lease must be for at least 15 years including the renewal periods, be freely assignable, and contain a future option for you to buy the leased land. Certain expenses associated with building and working from a home office can also qualify you for a tax break, but guidelines are strict. You must use the area designated as an office exclusively for business – dining room tables do not apply!Individuals who work at home are also entitle to deduct a portion of their home expenses, such as utilities, insurance and security system. Interest on home equity loans is likely to be deductible as well.
And when you sell, if your are married filing jointly, up to $500,000 in capital gains may be tax free!
Please note, this is a general overview and is not intended as tax advice. Please see your tax professional.
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