Home sweet homeownership tax breaks
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.
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.
Second home sales also can provide some tax benefits, but not as much as they did in the past, thanks to a law that took effect in 2008. Previously, you could move into your vacation property, live in the home as your primary residence for two years and then sell and pocket up to $250,000 or $500,000 profit tax-free. Now, however, you'll owe tax on part of the sale money based on how long the house was used as a second residence.
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, or PMI, because you weren't able
to come up with a large enough down payment, that's
a cost you probably won't be able to deduct -- unless you meet the requirements of a special PMI law. The tax-law change, first passed
in December 2006 and extended in December 2007, allows some homeowners to deduct PMI for loans
that are originated or refinanced after Jan. 1, 2007, and through Dec. 31, 2010, and which meet certain loan amount limits.
The other big home-related
insurance cost, property hazard insurance
premiums, still remains nondeductible for
all, 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 homeowners association dues,
any additional principal payments you make,
depreciation of your home, and 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.
Some long-time homeowners may find their property
has appreciated 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
|-- Updated: Feb. 19, 2009