Home ownership is something that people really think about before even attempting it. They think about all hurdles like finding a good neighborhood, the price of the house, and where they are going to get it. And of course, like everything else, they think about how much it's going to cost in taxes. We are here to help turn your tax nightmare into an opportunity to make money.
When you purchase a house, almost all the expenses associated with the house are not tax deductible except for one aspect. The IRS says that the interest that you pay on your house payments is deductible. The interest is part of every monthly payment you make for your house loan. If you bought the house on any day other than the first of the month, you incur daily interest for every day of the month that is tax deductible. Now here is how you make money on this. The IRS states in most cases, things like loan discount points and origination fees are tax deductible to the buyer, regardless of who pays them. This is an important factor because sometimes on HUD settlement statements, the seller is the one paying for them. However, it is not the seller that can claim them as deductible, but the buyer. These things can add up to almost 1% of the value of the house, and that's a lot of money you just saved as you can claim them as tax deductions.
Another tax-deductible interest that can cut your taxes is off a loan that you may acquire to repair or maintain your home. Usually in the first few monthly payments of the loan, they mostly consist of interest, so that can really help you in the first couple of years, as most of that is tax deductible. In addition, you can take out home equity loans to pay off personal loans that you may have taken out with a higher percentage of interest. For example, if you bought a car and you had taken out a loan that included a 15% interest, you can take out a home equity loan and pay your car loan off. The interest on the car loan is not deductible, but the interest on the home equity loan is. So you save money there also. You need to be careful when taking out home equity loans, realizing that you have put your house on the line here as collateral.
The act for selling your home can reap you many financial benefits as well. There is only one requirement when it comes to selling your home. You have to have lived in this house for at least two years out of the five years prior to sale as your principal residence. The way to make money on this is by buying a worn out house and working on that house for the next two years day and night and then when the two years are over, you sell it. Guess what? All the money up to $500,000 for married couples and $250,000 for single men or women that you make off the sale as profit or gain is tax exempt. This means you pocket all the cash. The only requirement right now is the two-year law. You have to live in the house for two years unless a medical condition forces you out.
So good luck and happy house hunting!
