Tax Advantage For Home Buyers

After buying your new home, you can take advantage of tax savings available only to homeowners. Although tax laws have changed considerably in recent years, owning a home remains an excellent investment.

Income Tax Deductions.

As a homeowner, you can deduct the items discussed below:

• Real Estate Taxes. The full amount of annual real estate taxes (also called property taxes) is a permissible income tax deduction for all homeowners.
• Mortgage Interest Payments. In most cases, you can deduct all of the interest paid on your mortgage. For example, interest payments on a 30-year, $100,000 mortgage at 10% interest amount to almost $10,000 during the first year after purchasing the home. This amount is an authorized deduction, and it represents a major tax savings for you. In addition, if you pay off your mortgage early, any fee paid as a prepayment penalty is considered tax-deductible interest.
• Points Paid to Lenders. You can also deduct, as interest, the points paid to a lender to obtain a new mortgage, provided that the payment represents compensation paid to the lender solely for the use of money, rather than for any specific services. The points are fully deductible only in the year of payment. Your income tax advantages from homeownership continue as long as interest, real estate taxes, and other deductions exceed the standard deduction. With a fixed-rate, regularly amortized mortgage, the amount of tax-deductible mortgage interest declines over the lifetime of the loan as an increasingly larger share of monthly payments is applied to repayment of the principal.

Capital Gains Tax Update.

Will the tax bill signed by the President on August 5, 1997 impact the real estate industry?

Yes! The bill makes significant changes that will benefit real estate including capital gains tax exclusions on the sale of a principal residence, a reduction in overall capital gains rates, penalty-free withdrawals from existing and new IRA's for the purchase of a home by a first time buyer.

If I sell my home now will I be impacted?

The new tax bill grants married couples up to a $500,000 capital gains tax exclusion for the sale of a principal residence where the owner has resided two of the last five years. Singles enjoy a $250,000 exclusion. Any profits in excess of the caps will be taxed at the new lower capital gains tax rate. Best of all, this principal residence exclusion can be reused over and over again.

Are losses on the sale of a residence deductible?

No. Taxpayers cannot deduct losses on the sale of their residence.

Can I still "rollover" the proceeds from a home sale if I purchase a home of greater or equal value?

No. The "rollover" provision in the current law, which allowed an individual to avoid capital gains taxes by purchasing a home of equal or greater value has been repealed in favor of the exclusion.