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9 Tips to Save you Money at Tax
Time.
Uncle Sam wants you to be a homeowner.
If he didn’t, he wouldn’t give homeowners
so many tax breaks. Of course, it’s up to homeowners
to make certain they claim all the tax deductions
to which they are entitled.
1. Mortgage Interest.
Joint tax filers can deduct all the interest on a
maximum of $1 million in mortgage debt secured by
a first and second home, or half of that amount single
filers. However, you can't use the $1 million deduction
if you pay cash for your home and later use it as
collateral for an equity loan.
2. Points.
Your lender may charge you a variety of fees, called
points. One point equals 1 percent of the loan principal.
Refinanced mortgage points are also
deductible, provided they are amortized over the life
of the loan.
3. Equity Loan Interest.
You may be able to deduct some of the interest you
pay on a home equity loan. However, the IRS places
a limit on the amount of debt you can treat as home
equity debt for this deduction. Your total home equity
debt is limited to the smaller of $100,000 (or $50,000
if filing separately), or the total of your home's
market value minus certain other outstanding debt
against it.
4. Home Improvement Loan
Interest.
If you take out a loan to make substantial home improvements,
you can deduct the interest on this loan. The work
must be a capital improvement, increasing your home's
value, prolong its life or adapt it to new use, like
adding a fence, driveway, swimming pool, porch, deck
and so on.
5. Property Taxes.
Property taxes are fully deductible from your income
- but you can't deduct escrow money held for property
taxes until the money is actually used to pay your
property taxes.
6. Home-office Deduction.
If you use a portion of your home exclusively for
business purposes, you may be able to deduct home
costs related to that portion, such as a percentage
of your insurance and repair costs, and depreciation.
7. Selling Costs and Capital
Improvements.
If you decide to sell your home, you'll be able to
reduce your taxable capital gain by the amount of
your selling costs. Real estate commissions, title
insurance, legal fees, and inspection costs are all
considered selling costs. In addition, the IRS recognizes
that costs of decorating and repairs are also selling
costs if you complete them within 90 days of your
sale and with the intention of making your home more
saleable.
8. Capital Gains Exclusion.
Thanks to the Taxpayer Relief Act of 1997, many home
sellers no longer suffer a taxable gain. Married taxpayers
filing jointly now get to keep, tax free, up to $500,000
in profit on the sale of a home used as a principal
residence for two of the prior five years. Single
filers can keep up to $250,000 tax-free.
9. Moving Costs.
If you move because you got a new job, you may be
able to deduct some of the moving costs.
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