Tax Benefits of Home Ownership

When it comes to tax savings it really is home sweet home. Here are some of the popular tax benefits of owning your own home and how to get the most out of your home’s tax advantaged status.

Arrow Mortgage interest. Interest paid on your home mortgage is still tax deductible. This deduction is taken on Schedule A as an itemized deduction. Certain upward limits apply.
Arrow Property taxes. Property taxes paid on your home are also tax deductible as an itemized deduction.
Arrow Home Equity. Most homeowners can take out a second mortgage on the “equity” in their home. In most cases, this interest expense is also tax deductible. Many use home equity loans for purchasing autos, boats, and the like since interest on traditional loans is not tax deductible.Idea: Consolidate credit card debt within a home equity loan or home equity line of credit if your home is worth more than your outstanding mortgage balance. You have the double advantage of deducting the interest on your tax return PLUS you avoid the higher interest rate on your credit card. A word of caution however, if you default on a payment your house is now the collateral.
Arrow Capital Gains Exclusion. When you sell your home, up to $500,000 for joint filers ($250,000 for single taxpayers) of the increased value over what you paid for the home can be excluded from tax. To take advantage of this capital gains exclusion you must make the home your principal residence in two of the last five years.
Idea: The capital gain exclusion on home sale can be used more than once. For example, you could sell your qualified main home and take the exclusion. If you then made a second (vacation) home your new main home you could also take the gain exclusion once again. You would need to meet the IRS ownership and use rules to qualify. Special allocation rules might apply if this second home was also rental property.
Arrow Second home benefits. A second home (cabin or vacation home) can also benefit from interest and property tax deductibility as long as total mortgages do not exceed certain limits.

Should you have any questions regarding your situation please feel free to call.

In the News. IRS Limits Direct Deposit of Refunds

Setting up your business accounting systemBeginning in January 2015, the IRS will be limiting the number of direct deposits into a single account to three transactions. This includes all bank accounts (savings and checking accounts) and any pre-loaded or pre-paid debit and credit card accounts. Any requests beyond three will automatically be converted to a paper refund check and mailed to the taxpayer.

The purpose of this change is to reduce the problem of taxpayers having their refunds stolen by criminals. Taxpayers who file multiple tax returns for different family members and have the refunds all deposited in a single account may be impacted by this new policy. In addition, this new direct deposit limit stops the practice of having filing fees directly paid out of a refund amount.

As an additional form of security, the IRS reminds us that direct deposits must be made to an account bearing the taxpayer’s name.