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.
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Unforeseen circumstances: |
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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.
What's not deductible
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 payment.
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.
What 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.
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