Tax Benefits of Home Ownership

The Value of Your Itemized Deductions:

It is one thing to say that home ownership generates itemized deductions for Mortgage Interest and Real Estate Taxes, but what does that mean and what are those deductions worth to you?

Itemized Deductions are worth something, if they exceed the amount of the Standard Deduction, which for 2008 was $5,400 for single taxpayers and $10,900 for married couples. Those amounts increased to $5,700 and $11,400, respectively for 2009 and will increase again slightly for 2010.
Itemized deductions also include medical expenses (in excess of 7.5% of Adjusted Gross Income), state income taxes, charitable contributions and theft and casualty losses; so that many of you may be at or close to the level of the Standard Deduction before taking into account Home Mortgage Interest and Real Estate Taxes from the purchase of a home.

The tax benefit value of your Itemized Deductions is the amount of those deductions times your marginal tax rate.

As an example: you were at a marginal tax rate for 2008 of 25% if your taxable income was over $32,550 if you are single and over $65,100 if you are married. Those amounts have increased for 2009 to $33,950 and $67,900, respectively. For 2009 you are in the 28% marginal tax bracket if you are single and your taxable income was over $82,500 and over $137,050 if you are married.

Taxable income is generally your Adjusted Gross Income less your itemized or standard deduction, less your personal exemptions; which were $3,500 per person for 2008, for yourself and all dependents. That amount has increased to $3,650 for 2009.

So if you had deductions from the purchase of a new home of $15,000 (a reasonable amount based upon a purchase price of about $275,000) and had a marginal tax rate of 25%, as noted above, the value of those deductions would be $3,750 ($15,000 x 25%) or about $300 per month to apply to the cost of your new home.

To learn more about Tax Benefits and Home Ownership contact Seth J Driggin

Posted by Seth J. Driggin – Partner

Jebb & Driggin is an Exclusive Buyer’s Agency

Filed under: Benefits of Owning a Home, Tax Benefits of Owning new Home, Tax Deductions and Home Ownership

Tax Benefits of Home Ownership – Part 4

The Value of Your Itemized Deductions:

It is one thing to say that home ownership generates itemized deductions for Mortgage Interest and Real Estate Taxes, but what does that mean and what are those deductions worth to you?

Itemized Deductions are worth something, if they exceed the amount of the Standard Deduction, which for 2008 was $5,400 for single taxpayers and $10,900 for married couples.

Itemized deductions also include medical expenses (in excess of 7.5% of Adjusted Gross Income), state income taxes, charitable contributions and theft and casualty losses; so that many of you may be at or close to the level of the Standard Deduction before taking into account Home Mortgage Interest and Real Estate Taxes from the purchase of a home.

The tax benefit value of your Itemized Deductions is the amount of those deductions times your marginal tax rate.

As an example: you were at a marginal tax rate for 2008 of 25% if your taxable income was at least $32,550 if you are single and at least $65,100 if you are married.

Taxable income is generally your Adjusted Gross Income less your itemized or standard deduction, less your personal exemptions; which were $3,500 per person for 2008, for yourself and all dependents.

So if you had deductions from the purchase of a new home of $15,000 (a reasonable amount based upon a purchase price of about $275,000) and had a marginal tax rate of 25%, as noted above, the value of those deductions would be $3,750 ($15,000 x 25%) or about $300 per month to apply to the cost of your new home.

To discuss a home purchase, contact one of our agents at (617) 859-0300.

These examples do not take into account state income taxes.  While many states allow deductions for home mortgage interest and real estate taxes, Massachusetts does not. These descriptions are for general information only and are not meant as tax or legal advice for any specific individual.  Please consult your own attorney or tax advisor for information relating to your circumstances.

Filed under: Benefits of Owning a Home, Tax Benefits of Owning a Home

Tax Benefits of Home Ownership – Part 3

Adjusting Your Withholding Taxes

Withholding taxes are based upon your income, number of dependents, including yourself, and an estimate of itemized deductions.  If your itemized deductions increase because of the payment of mortgage interest and/or real estate taxes in connection with the purchase of a home, you can immediately reduce your withholding taxes to account for those changes.

You do not need to wait to the end of the year to get a refund. You can calculate the tax benefits attributable to your home purchase and take those benefits on a monthly basis to help pay the mortgage and real estate taxes that generate those tax benefits.

To discuss a home purchase, contact one of our agents at (617) 859-0300.

These descriptions are for general information only and are not meant as tax or legal advice for any specific individual.  Please consult your own attorney or tax advisor for information relating to your circumstances.

Filed under: Benefits of Owning a Home, Tax Benefits of Owning a Home

Tax Benefits of Home Ownership – Part 2

1. Deductibility of Home Mortgage Interest

You may deduct, as an itemized deduction on Schedule A of your Federal tax return, mortgage interest on up to two residences, subject to the following limitations, both of which likely don’t apply to many of us:

• The loan principal to acquire or renovate the residence(s) may not exceed $1,000,000; plus an additional $100,000 for a home equity loan, for a total of $1,100,000.
• If your Adjusted Gross Income exceeds certain amounts, which generally increase annually (that amount was $159,950 for 2008), your mortgage interest deduction is subject to the general 2-3% reduction of itemized deductions.

2. Deductibility of Real Estate Taxes

You may also deduct, as an itemized deduction on Schedule A of your Federal tax return, real estate taxes on all property owned by you, including your home, with a couple of exceptions that likely may not apply.

• Like home mortgage interest, real estate taxes are subject to the general 2-3% reduction of itemized deductions to the extent that your Adjusted Gross Income exceeds certain levels, as noted above.
• Real Estate Taxes are an “add – back” for purposes of the Alternate Minimum Tax.

To discuss a home purchase, contact one of our agents at (617) 859-0300.

These descriptions are for general information only and are not meant as tax or legal advice for any specific individual.  Please consult your own attorney or tax advisor for information relating to your circumstances.

Filed under: Benefits of Owning a Home, Tax Benefits of Owning a Home

Tax Benefits of Home Ownership – Part 1

With all of the recent discussions of the $8,000 First Time Home Buyer tax credit and the $6,500 tax credit for Move-Up/Repeat Home Buyers, it is important to remember some of the existing federal tax benefits of owning a home. Some of these benefits, which in the aggregate can far exceed the one-time $8,000 credit, are described in this series of blogs.

 

Avoidance of Tax on the Sale of Your Principal Residence

$250,000 of gain on the sale of a principal residence (including a condominium) is excluded from income ($500,000 for married couples).

Criteria: To qualify you must have owned and occupied the property as your principal residence for an aggregate of 2 of the 5 years immediately prior to the sale. The periods of ownership do not need to be continuous, and the ownership and use tests may be met in different two year periods.

Married Couples: To qualify for the increased exclusion of $500,000, ownership by either spouse can qualify for the ownership test; but both spouses must meet the use test.

Exceptions: Even if you do not meet the 2 out of 5 year ownership and use tests, you are entitled to a reduced exclusion limit if the primary reason for your sale is a change in the location of employment, health reasons, or unforeseen circumstances. In that case, a prorated exclusion limit is allowed.

You may claim this exclusion as many times as you like, provided that the sales are at least two years apart.

To discuss a home purchase, contact one of our agents at (617) 859-0300.

These descriptions are for general information only and are not meant as tax or legal advice for any specific individual.  Please consult your own attorney or tax advisor for information relating to your circumstances.

Filed under: Benefits of Owning a Home, Tax Benefits of Owning a Home

Are You Better Off Buying?

According to an article in this morning’s Globe, the average rent in the Greater Boston area is now $1,629 per month.  Rent is now 11% more than four years ago, even though housing values dropped about 18% during the same period.

Today’s first time home buyers have the added benefit of an $8,000 tax credit and historic low interest rates, which means that for some, purchasing a home not only offers a chance to build equity, it may actually cost less per month than renting.

For more information about the home buying process and current property listings, register to start your home search.

Filed under: Benefits of Owning a Home, First Time Home Buyer, Equity, First Time Home Buyer Tax Credit, Home Buyer Advice, Interest Rates, Renting vs. Buying