Tax Advantages And Restrictions For Homeowners
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Although there are numerous tax breaks for homeowners (as opposed to renters), all buyers, sellers and current homeowners need to be aware of the current tax laws and regulations.
"Cost basis" is a tax term for the dollar amount assigned to a property at the time it is acquired, for the purpose of determining a gain or a loss when it is sold.
While some costs associated with homebuying are not immediately tax deductible, they can be figured into the adjusted cost basis of your home when you go to sell. They include:
- closing costs
- any significant home improvements
- title insurance
- loan application fees
- credit reports
- appraisal fees
- attorney fees
- document preparation and recording fees
As of January 1, 1991, homeowners have been able to deduct points paid by the seller. Previously homeowners could only deduct points paid by the buyer. As a homeowner, when you go to sell your house, you cannot deduct losses on the sale from your tax returns. Make sure to minimize your losses by keeping your house updated and in good repair.
When inheriting a house, the IRS determines the value of the house -- the "fair market value" at the time of the original homeowner's death -- not the amount originally paid. The party who inherited the house is responsible for capitol gains tax on the profit made. (Estate taxes only kick in when the total value of the estate reaches $600,000.)
The interest and property taxes are deductible on a second home, if you itemize. Make sure to check with your accountant or tax advisor for specifics.
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