Homeownership tax myths
Taking
out a mortgage to purchase a home is a great goal
for anyone to have.
Many people decide to buy for various reasons; and one
of the biggest motivators for people to switch from renting
to owning is the tax breaks.
But many of these so-called “tax-breaks” are
actually myths in themselves. So if you are looking
to buy a home just for the tax breaks, you could be
in for a rude awakening.
According to the article, “Five homeownership tax
myths,” by Kay Bell from Bankrate.com, tells some
of the most common misconceptions homeowners have about
their taxes.
“Owning a home tops the dream
list for most Americans, and for plenty of good reasons.
It's a shelter for your family, a gathering place for
your friends and a good long-term investment. Tax breaks
are also frequently cited as motivation for moving from
renting to owning, and there are many ways a home can
cut your tax bill. But, as is often the case with the
U.S. tax code, homeownership tax benefits are not always
clear-cut. That frequently leads to some bad information
floating around.”
Bell states that there are five common myths that people
are most often misinformed about.
“While myths, half-truths and misconceptions may
abound, we've narrowed it down to five that, if you buy
into them, could cost you: Mortgage
interest will reduce my tax bill. All costs related
to my home are tax deductible. I must use home profits
to buy a new home. Putting my children on the deed is
tax-smart. If I take a loss on a sale, I can write it
off.”
As for the first myth, some owners see a reduction in
their tax bill as a result of interest from their mortgage,
but many do not. There are a lot of factors that could
affect whether or not you see a reduction such as timing
and when you purchase your home.
As for the myth that claims all costs related to my home
are tax deductible, Bell says, “There are no two
ways about this one. It's flat-out false.”
The next myth claims that a homeowner
must use money form a home to purchase a new one,
it used to be partially true, but does not apply any more.
“This
used to be the only way to get around a tax bill on a
home sale. Even then, you were only able to defer taxes
by purchasing a new residence of equal or greater value
with the profits from your other house. When you sold
your final house, you'd owe those long-deferred taxes
you had rolled over throughout the years. Home sellers
age 55 or older were allowed a once-in-a-lifetime tax
exemption of up to $125,000 in sale profit. But on May
7, 1997, home-sale tax law changed. Still, almost a decade
later, many homeowners are confused about the tax implications
of selling.”
Bell warns that putting a child on the deed can cause
complications for you and your child later on down the
road, and does not suggest doing this.
The last myth that you can write off any losses on a sale
is also plain wrong. “It is true that real estate,
like any other asset, has the potential to go down as
well as up in value. But unlike most of those other holdings,
you cannot write off any loss you suffer if you must sell
your main residence for less than what you paid. That's
because your residence, under tax law, is considered personal
property.”
Hopefully accepting the truth about these myths will give
you a better understanding of the world of homeowner’s
taxes.
Back to Articles
