Tax deductions you'll receive:
- Interest you pay on first and second mortgages up to $1 Million is normally tax-deductible
- Property taxes are also deductible
- When purchasing, any points paid to reduce your interest rate are deductible in the year they are paid
Let's look at an estimate of the subsidy you could potentially receive if you bought a $200,000 home with a $180,000 mortgage at 7%. Interest the first year would be $12,542 and the property taxes would be $2,500. Here's what you'll save:
Tax savings total: $4,212 or $351 per month. The total payment on this $180,000 loan, including principle and interest, taxes and insurance is $1,445. The payment after your tax savings is only $1,095.
So, Uncle Sam has just subsidized $351 of your house payment. At our Pre-Approval Consultation we will do a personalized Homebuyer Tax Analysis™ for you.
It's easier to choose buying over renting with this kind of help. And, this doesn't even take into account the fact that you are purchasing an asset that historically has appreciated.
 Another Excellent Tip
Many people think that owning a home will only benefit them at the end of the year with a refund on their taxes. Not true! If you would like to realize the above benefit on a monthly basis, you can. Just ask your tax preparer/advisor to see how much you should change your withholding exemptions so you take more home from every paycheck and use the tax savings immediately.
We can provide you with the numbers for your particular situation at your consultation. We will also help you determine if paying points makes sense for you.
Taxes When You Sell Your Home
The Taxpayer's Relief Act of 1997 made some helpful changes to the way real estate is taxed. Married homeowners filing a joint return can now sell their principle residences at a profit of up to $500,000 without paying capital gains taxes. Single filers can exclude up to $250,000 of gain. With this exclusion, you don't have to purchase another home within two years to defer your capital gains as the old rules required.
To qualify for the exclusion, the taxpayer(s) must have lived in the home for two of the five preceding years. The home may have also been a rental property during that time, but must have been a principal residence for two of the last five years. For taxpayers who cannot meet the two year requirement, there is a formula to give a partial exclusion. If the gain on the sale exceeds the exclusion, normal capital gains tax rates will apply. This new exclusion replaces the once-in-a-lifetime exclusion that was reserved for people over 55 years of age. It allows a homeowner who meets these requirements to have a tax free profit on the sale of a home without having to reinvest in another home.
These new rules will open many new strategies for homeowners. This exclusion applies only to principal residences but does not apply to second homes or vacation homes. Sales of second or vacation homes are treated as income-producing property to which capital gains tax rates would apply.
Move-Up Tax Analysis
Move-up buyers face different issues when making the decision to purchase a home.
- Often they want to reach for the stars and purchase their "dream" home.
- They usually have additional factors to consider, such as college expenses, car payments, second homes, retirement planning, etc.,
Both of these issues can result in the move-up buyer becoming uncomfortable with the monthly payment they are facing.
Tax analysis can show you hidden savings when moving up.
To ease the concerns of the move-up buyer and create a level of comfort with their new house payment, we have a detailed review called the "Move-up Tax Analysis". This simple program provides information to the client that lets them make a more informed decision of whether "moving up" is a good option for them.
Tax Analysis Typically Focuses on First-Time Buyer
Almost all the consumer education available about the tax benefits of owning a home is directed at first-time buyers, so it's not surprising that many move-up buyers don't give enough consideration to this question. Not everyone wants to stretch their monthly payment too much, but everyone does want to get the most house that they can comfortably afford.
Call today for your Free, personalized Move-Up Tax Analysis.
Have any questions? Call us! Our office is the Bay Area, but if you live anywhere in California, simply call our toll free number, 1-800-325-2062. One of our home loan specialists will be glad to help you.
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