Feedback form
Are you enjoying our content? Don’t miss out! Sign up!
India Currents gave me a voice in days I was very lost. Having my articles selected for publishing was very validating – Shailaja Dixit, Executive Director, Narika, Fremont
Be aware that tax consequences are associated with home ownership.
Home purchase
When purchasing a home, you may pay a portion of the mortgage interest in advance. This loan origination fee, or “points,” is a percentage of the total amount borrowed. If points are paid for a principal residence, you generally can deduct the full amount in the year paid, even if the points were paid by the seller. One of the greatest tax benefits of home ownership kicks in during the early years, when most of your payments go toward tax-deductible interest.
IRA Withdrawals
The tax law allows penalty-free IRA withdrawals, up to a lifetime limit of $10,000 for the purchase of a first home. Withdrawals from Roth IRAs for qualifying first-home expenses can be both penalty-and tax-free (Roth should be at least five years old).
Refinancing
What happens if you refinance? If you pay points, the general rule requires that you prorate deductions over the life of the loan. But if some of the refinance proceeds go toward home improvements, you may be able to take a current deduction for the portion of the points related to those improvements.
Improvements
If you take out a loan to make substantial improvements to your principal residence, and the loan is secured by that property, the interest is generally deductible. Remodeling often increases the value of your property.
Other home improvement costs generally are not deductible, but if you upgrade your home for medical reasons—say, to add a wheelchair ramp or stair lift — you may be able to deduct a portion of the cost as a medical expense.
Home Office
The home office deduction can be another tax break. If you use part of your home regularly and exclusively as a principal place of business, you may be able to deduct costs associated with that part.
Home Sale
When you sell a home that you have used as your principal residence for at least two of the five years before the sale, you can generally exclude from taxation up to $250,000 of profit if you’re single and up to $500,000 if you’re married filing jointly. Profits in excess of those amounts are subject to regular capital gains rates and rules.
Khorshed Alam is a practicing CPA and business valuation analyst. He is the President and CEO of Alam Accountancy Corporation. Check out http://alamcpatax.com or call (408) 445-1120.