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Housing Stats ∙ Save Money With Housing Tax Deductions
THE HOUSTON REAL ESTATE MARKET IS HOLDING STEADY
The Houston housing market managed to stay healthy in February with homes sales up over two percent compared to the same month last year. February sales of all property types stayed flat in comparison to February 2015. Single-family homes priced between $150,000 and $500,000 recorded positive sales volume while the homes above $500,000 experienced the largest decline. Houston now has a 3.4 month supply of single family home inventory versus 2.7 months last February.
According to the latest monthly report prepared by the Houston Association of REALTORS® (HAR):
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Save Money With Housing Tax Deductions
Tax day is coming, and we all love to keep our money in our pockets. The U.S. tax code offers several homeowner deductions that can help you save money. If you itemize, make sure you maximize your financial investment by taking advantage of the following deductions. For more information, please talk to your CPA.
Mortgage Payment Interest Deduction
Homeowners that itemize their deductions can deduct the interest paid on a mortgage with a balance of up to $1 million. If the home is more than $1 million, the IRS will limit the deductible interest. This is one reason why homeowners with jumbo mortgages limit themselves to one million dollars per loan.
Due to the standard mortgage amortization schedule being front-loaded with mortgage interest, some homeowners can receive a large tax break in the early years of the loan.
Interest paid on a refinanced loan, home equity loans (HELOAN) and home equity lines of credit (HELOC) are tax-deductible as well. However, restrictions apply on homeowners who raise their mortgage debt beyond their property’s fair market value.
Mortgage interest on a second home is also deductible. The additional property doesn’t have to strictly be a house. It could be a boat or RV, as long as it has cooking, sleeping and bathroom facilities. You can still take full advantage of the mortgage interest tax deduction even if you rent it out for part of the year, as long as at least 14 days are spent there or more than 10% of the number of days you rent it out (whichever is longer).
Mortgage Points/Origination Deduction
Discount points paid in connection with a home purchase or refinance are usually tax-deductible.
A discount point is a one-time fee, paid at closing, which allows a borrower to access mortgage rates below current “market rates”. One discount point costs one percent of the borrower’s loan size. A 1% fee on a $100,000 loan would be one point, or $1,000. Discount points are considered “prepaid mortgage interest” because it’s an advance payment on a mortgage in exchange for lower interest payments over time. Since discount points are considered, “prepaid mortgage interest, they are considered tax-deductible. The tax-deductibility of discount points varies by loan type.
On a home purchase loan, taxpayers can deduct the entirety of points paid in the same year. On a refinance loan, the points must be deducted as an amortization over the life of the loan. Many taxpayers forget about this amortized benefit over time, so it’s important to keep good records on the deduction of points on a refinance.
The same rule applies to home equity loans or lines of credit. When the loan money is used for work on the house securing the loan, the points are deductible in the year the loan is taken out.
Property Tax Deduction
Property taxes can often be deducted in the year in which they are paid. If your mortgage lender currently escrows your taxes and insurance, it will send an annual statement to you that can be file with your complete federal tax returns. Homeowners should only deduct the amount of property tax actually paid to their local municipality for the year. This is not necessarily the amount you paid to your escrow account, and should not include any other city or county fees that might potentially be on the same bill as your property taxes.
Real Estate Selling Cost Deduction
If you sold your home for a profit in 2015, $250,000 in sales gain ($500,000 for married, filing jointly) is tax-free as long as the homeowner owned the property for two years and lived in it for two of the five years before the sale.
If the home was sold before meeting the ownership and residency requirements, tax on any profit will be owed. The IRS provides some tax relief if the sale is because of a change in the owner’s health, employment or unforeseen circumstances (death, divorce/legal separation, employment circumstances or multiple births from the same pregnancy). In these cases, the tax-free gain amount is prorated.
Other selling costs can also be deducted from your gain on the sale. Selling costs can include repairs, title insurance, advertising expenses, real estate broker’s commissions, and inspection fees. However, the IRS only allows you to deduct repair costs associated with selling costs if the repairs are made within 90 days before the sale, and the repairs were made with the intention of improving the marketability of your home.
Home Improvements
Certain types of home improvement projects are tax-deductible. Home improvements made for medical reasons, for example, can be tax-deductible. If you are making home renovations to accommodate a chronically ill or disabled person, and the renovations do not add to the overall value of the home, the project costs are typically 100% tax deductible. Repairs and improvements made for aesthetic purposes are not tax-deductible.
Moving Costs
If you moved due to a change in your job or business location, or because you started a new job or business, you may be able to deduct your reasonable moving expenses but not any expenses for meals. You must meet the following requirements in order to be able to make these deductions. First, your new job must be at least 50 miles farther from your old home than your previous job was. Second, you must work full time for at least 39 weeks during the 12 months following your move. Moving costs deductions may include items such as transportation, lodging and storage fees.
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If you think it is time to buy or sell a home, remember to call Leslie Lerner Properties at 713.489.9900. Leslie Lerner Properties is the Home of Flat Fee Listings and Rebated Commissions. A great amount of information can be found at www.LeslieLernerProperties.com. Leslie Lerner Properties offers all of the service for less money, when buying or selling a home.
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