Tax Guide |
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For many people, a home is not only a shelter for their family, but also their only real tax shelter available.
The opportunity to reduce your income taxes by deducting your mortgage interest payments, the points you may have paid when taking out your loan, and your real estate taxes is one of the most important incentives for owning a home.
In order to claim the tax breaks for mortgage interest and real estate taxes, you'll need to itemize your deductions. It's important to note that if you're itemizing in order to claim home mortgage and real estate taxes, you'll also be able to claim any itemized deductions for state and local income taxes, charitable contributions, casualty losses, employee business expenses and other miscellaneous deductions that exceed 2 percent of your adjusted gross income (AGI), and medical expenses that exceed 10 percent of your AGI. (The threshold for medical expenses has increased from 7.5 percent in 2012 to 10 percent in 2013. However, it remains at 7.5 percent in 2013 if the taxpayer or spouse is over age 65.) These deductions can save you many tax dollars - and most people who don't own a home can't take advantage of them.
Note, however, that some itemized deductions are limited for high-income taxpayers. Taxpayers whose adjusted gross income (AGI) exceeds a threshold amount must reduce the amount of allowable itemized deductions by the lesser of: (1) three percent of the excess over the threshold amount, adjusted annually for inflation; or (2) 80 percent of allowable deductions.
If you sell your home, generally the first $250,000 in gains on the sale will be tax-free (the first $500,000 will be tax-free if you are married filing jointly), provided that you meet certain requirements. Unfortunately, losses on the sale of your personal residence are generally not deductible, unless you used part of the property for business purposes or rented it out.
Finally, for those of you who own investment real estate, we'll discuss the rules related to reporting rental income and deductions, and handling the purchase or sale of rental property, including second homes.
For more information, see any of the following:
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