sweet homeownership tax breaks|
And a ruling by the IRS in late
2002 could put more dollars in homeowners' pockets when they must sell before
they qualify for the full tax break. The Treasury has defined the unforeseen circumstances
that often force homeowners to sell and under which they now can get some tax
relief. They include:
- Divorce or legal separation,
- Job loss that qualifies for unemployment compensation,
- Employment changes that make it difficult for the homeowner to meet mortgage
and basic living expenses, and
- Multiple births from the same
A partial exclusion can be claimed if the
sale was prompted by residential damage from a natural or man-made disaster or
the property was "involuntarily converted," for example, taken by a
local government under eminent domain law.
While many tax breaks are available to a homeowner,
don't get too carried away. There are still a few things for which you have to
bear the full cost.
One such expense is insurance. If you
pay private mortgage insurance because you weren't able to come up with a large
enough down payment, that's a cost you can't write off at tax time. Neither can
you deduct your property insurance premiums, even though the coverage generally
is required as part of the home loan and is included as a portion of your monthly
Other nondeductible residential expenses include homeowner
association dues, any additional principal payments you make, depreciation of
your home, general closing costs and local assessments to increase the value of
your neighborhood, such as construction of new sidewalks or utility connections.
about all those repairs that seem to crop up the day after you move in? Surely
they're tax deductible. Sorry. While they'll make your house much more comfortable,
you're on your own here, too.
But hold onto the receipts.
In today's hot real estate market, some homeowners may find their property will
appreciate beyond the $250,000 ($500,000 for married couples) amount the IRS will
let you keep tax free when you sell. If that happens, the records of
property improvements could help you establish a higher basis
for your house and reduce your taxable profit.