12 Ways To Beat The IRS and Keep Your Money – Legally
I love owning real estate because it is one of the best legal ways to beat the IRS. If you want to pay less in taxes and you think the government is wasteful in how they spend your money, then the best way to get your money back is to buy a home or investment property. Isn't that great! You can beat the IRS by buying real estate. I love it. This is also why some people want to eliminate the mortgage interest deduction because they think it is discriminatory to renters. Maybe it is, but until they change the tax code, which could happen soon, I would buy a house. The deductions you received for buying a house and paying less with a mortgage payment than you would pay in rent is amazing. It's a great incentive to buy a home if you can significantly reduce the taxes coming out of your income going to Uncle Sam.
We have learned our lesson as real estate agents, not to sell future appreciation to first time home buyers and the ability to refinance or flip and make money on their home in the future. Run as fast as you can Mr. First Time Home buyer, if your agent is saying anything like that to you. The agent has forgotten about the Great Financial Crisis. Your home will increase over time but you can't rely on appreciation. Again, history has taught us all some very important lesson about speculating in real estate, and market bubbles.
The home you live in should not be considered an investment unless it is an investment property; which is another great tax reduction strategy as well as investment. In addition, we should all live within our means. More about that in another blog. What we can rely on, for now and until the government takes it away, are great tax deductions that we cannot get any other way from home ownership. Home ownership is still one of the best and most affordable tax shelter vehicles to reduce our tax liability and at the same time give us long term future appreciation and savings through the elimination of the debt on the property over time.
If you have purchased a home in the past year, congratulations. Below are 12 home buying tax deductions that the IRS allows. If you have not purchased a home then you are giving away your money to the government and on your way to becoming poorer. The IRS will continue to take more and more money from you as you make more money or they (The Federal Government) will increase your taxes because the Government has an insatiable appetite for money. It's a terrible situation to be in. Buy a home as soon as you can. Good luck to you.
1. Mortgage Interest Tax Deductions – One of the more popular tax deductions is the mortgage interest tax deduction that the government has constantly tried to get rid of. Given that mortgage interest tax deductions are one of the best tax breaks allowed by homeowners, getting rid of them would not do real estate values any good. As long as a home buyer uses the money to buy and improve the home and the mortgage is secured by the property, tax deductible mortgage interest values can be up to a million dollars. However, the maximums are halved for married taxpayers that are filing separately.
2. Mortgage Points – When taking out a mortgage, points paid are tax deductible if the points are used to lessen the mortgage rate. One point is equal to 1% of the loan principal. However, not many people would want to pay points on a loan unless the costs of such points can be taken back in the form of reduced payments. To find out if paying points is the right way to go, you will need to calculate the mortgage payment of paying with and without points. Another way to go about it is to amortize the points over the term of the mortgage. However, this choice will be better only if your itemized deductions are less than the standard deduction for the year the home was bought.
3. Prorated Mortgage Interest – Depending on the month the home is closed, the buyer usually pays either a small or large amount of pro-rated mortgage interest. This amount is tax deductible as the final real estate settlement will be able to show much the buyer is really due.
4. Mortgage Prepayment Penalties – Although it is very rare to find mortgages with prepayment penalties, they still do exist. Buyers with mortgages that include a prepayment penalty and finish the loan payments early will be happy to know that these penalties are tax deductible.
5. Mortgage Insurance – For home buyers who got loans from year 2007 to 2009 and got the mortgage from the Federal Housing Agency (FHA), the Rural Housing Agency (USDA loan) or the Veterans Administration (VA), private mortgage insurance can be tax deductible. For prepaid mortgage insurance premiums, these must be written off during the period to which they apply.
6. Prorate Real Estate Taxes – Most of the time, sellers will pay the local tax collector’s office for real estate taxes before the closing. In some rare cases, the buyer will pay a pro-rate portion of the taxes for the year the deal is closed. This exemption is one of the most forgotten possible tax deductions.
7. Construction or Home Improvement Loan Interest– Home buyers can write off the interest for a new construction as long as the construction period does not last for more than two years before the home becomes a “principal residence”. However, the work done must be “capital improvements” which can increase the home’s value, prolong it or adapt it to new uses, instead of just ordinary repairs. This tax deduction is another write off many people forget to deduct.
8. Home Office Deduction – If homeowners are using a portion of their new home exclusively for business purposes, they may deduct home costs related to that portion. For example, a percentage of your insurance, depreciation and repair costs are all valid deductions. As more and more professionals are turning their homes into their home offices, this would be a good tax deduction to remember.
9. Moving Costs Deductions – Surprisingly, you may reduce some of your moving costs when you move to a city because you got a new job. However, home buyers must meet several requirements to quality for such tax deductions which include that the job must be at least 50 miles farther from your old home than where your old job was. These moving costs deductions can include travel and transportation costs, fees for storing household goods and expenses for lodging.
10. Energy-efficient improvements – We already know that any significant home improvements done to a home can be tax deductible, but upgrading to any energy-efficient equipment allows even more tax deductions. Equipment such as solar panels, solar water heaters, wind energy systems or geothermal heat pumps can allow tax deductions of up to 30% of the costs.
11. Deductions for having children – A new house means a growing family. Parents are eligible for another exemption when they meet certain requirements for the Earned Income Tax Credit and the Child Tax Credit. Although minimal, these deductions can help with the overall costs of buying a home.
12. Withholding Adjustments – New homeowners can adjust their federal income tax withholding at work based on their mortgage interest deduction and greatly boost his take-home pay. This deduction is something you should definitely discuss with your employer.
Aside from the tax breaks available to home buyers, you can also enjoy other tax deductions when you sell your home. I will write about those deductions another time. That's two more blogs I need to write. The Tax Code is complicated and is changing. I am not a Tax Accountant or CPA but I feel like one from my personal dealings with the IRS. Please check with your CPA or Tax Accountant for a clear understating of the tax implications, laws and deductions as it relates to home-ownership. Now go buy a home and beat the IRS.
We have learned our lesson as real estate agents, not to sell future appreciation to first time home buyers and the ability to refinance or flip and make money on their home in the future. Run as fast as you can Mr. First Time Home buyer, if your agent is saying anything like that to you. The agent has forgotten about the Great Financial Crisis. Your home will increase over time but you can't rely on appreciation. Again, history has taught us all some very important lesson about speculating in real estate, and market bubbles.
The home you live in should not be considered an investment unless it is an investment property; which is another great tax reduction strategy as well as investment. In addition, we should all live within our means. More about that in another blog. What we can rely on, for now and until the government takes it away, are great tax deductions that we cannot get any other way from home ownership. Home ownership is still one of the best and most affordable tax shelter vehicles to reduce our tax liability and at the same time give us long term future appreciation and savings through the elimination of the debt on the property over time.
If you have purchased a home in the past year, congratulations. Below are 12 home buying tax deductions that the IRS allows. If you have not purchased a home then you are giving away your money to the government and on your way to becoming poorer. The IRS will continue to take more and more money from you as you make more money or they (The Federal Government) will increase your taxes because the Government has an insatiable appetite for money. It's a terrible situation to be in. Buy a home as soon as you can. Good luck to you.
1. Mortgage Interest Tax Deductions – One of the more popular tax deductions is the mortgage interest tax deduction that the government has constantly tried to get rid of. Given that mortgage interest tax deductions are one of the best tax breaks allowed by homeowners, getting rid of them would not do real estate values any good. As long as a home buyer uses the money to buy and improve the home and the mortgage is secured by the property, tax deductible mortgage interest values can be up to a million dollars. However, the maximums are halved for married taxpayers that are filing separately.
2. Mortgage Points – When taking out a mortgage, points paid are tax deductible if the points are used to lessen the mortgage rate. One point is equal to 1% of the loan principal. However, not many people would want to pay points on a loan unless the costs of such points can be taken back in the form of reduced payments. To find out if paying points is the right way to go, you will need to calculate the mortgage payment of paying with and without points. Another way to go about it is to amortize the points over the term of the mortgage. However, this choice will be better only if your itemized deductions are less than the standard deduction for the year the home was bought.
3. Prorated Mortgage Interest – Depending on the month the home is closed, the buyer usually pays either a small or large amount of pro-rated mortgage interest. This amount is tax deductible as the final real estate settlement will be able to show much the buyer is really due.
4. Mortgage Prepayment Penalties – Although it is very rare to find mortgages with prepayment penalties, they still do exist. Buyers with mortgages that include a prepayment penalty and finish the loan payments early will be happy to know that these penalties are tax deductible.
5. Mortgage Insurance – For home buyers who got loans from year 2007 to 2009 and got the mortgage from the Federal Housing Agency (FHA), the Rural Housing Agency (USDA loan) or the Veterans Administration (VA), private mortgage insurance can be tax deductible. For prepaid mortgage insurance premiums, these must be written off during the period to which they apply.
6. Prorate Real Estate Taxes – Most of the time, sellers will pay the local tax collector’s office for real estate taxes before the closing. In some rare cases, the buyer will pay a pro-rate portion of the taxes for the year the deal is closed. This exemption is one of the most forgotten possible tax deductions.
7. Construction or Home Improvement Loan Interest– Home buyers can write off the interest for a new construction as long as the construction period does not last for more than two years before the home becomes a “principal residence”. However, the work done must be “capital improvements” which can increase the home’s value, prolong it or adapt it to new uses, instead of just ordinary repairs. This tax deduction is another write off many people forget to deduct.
8. Home Office Deduction – If homeowners are using a portion of their new home exclusively for business purposes, they may deduct home costs related to that portion. For example, a percentage of your insurance, depreciation and repair costs are all valid deductions. As more and more professionals are turning their homes into their home offices, this would be a good tax deduction to remember.
9. Moving Costs Deductions – Surprisingly, you may reduce some of your moving costs when you move to a city because you got a new job. However, home buyers must meet several requirements to quality for such tax deductions which include that the job must be at least 50 miles farther from your old home than where your old job was. These moving costs deductions can include travel and transportation costs, fees for storing household goods and expenses for lodging.
10. Energy-efficient improvements – We already know that any significant home improvements done to a home can be tax deductible, but upgrading to any energy-efficient equipment allows even more tax deductions. Equipment such as solar panels, solar water heaters, wind energy systems or geothermal heat pumps can allow tax deductions of up to 30% of the costs.
11. Deductions for having children – A new house means a growing family. Parents are eligible for another exemption when they meet certain requirements for the Earned Income Tax Credit and the Child Tax Credit. Although minimal, these deductions can help with the overall costs of buying a home.
12. Withholding Adjustments – New homeowners can adjust their federal income tax withholding at work based on their mortgage interest deduction and greatly boost his take-home pay. This deduction is something you should definitely discuss with your employer.
Aside from the tax breaks available to home buyers, you can also enjoy other tax deductions when you sell your home. I will write about those deductions another time. That's two more blogs I need to write. The Tax Code is complicated and is changing. I am not a Tax Accountant or CPA but I feel like one from my personal dealings with the IRS. Please check with your CPA or Tax Accountant for a clear understating of the tax implications, laws and deductions as it relates to home-ownership. Now go buy a home and beat the IRS.
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