Who isn’t excited about a new home? Whether you are a first-time homeowner like Julie and Sandra or an
experienced homeowner, the fun of buying a new home remains unparalleled. And what better news than to
learn that buying a home also brings along with it some tax advantages.

This week, we’ll discuss some tax tips for homeowners. If you’re a first-time homeowner or if you haven’t
owned a home in the past two years, maybe buying a house, taking out a mortgage, and moving are at the
forefront of your mind. If you have owned a home for more than a year, you already know the tax benefits of
owning a home. Here are some of the different types of deductions available on your federal tax return
because you own a home:

• Mortgage Interest – mortgage debt generally cannot exceed the value of the home for purposes of
  claiming the deduction. Under current federal tax law, mortgage interest is generally deductible on up to
  $750,000 of acquisition indebtedness for loans used to buy, build, or substantially improve a primary
  or secondary residence. Home Equity Lines of Credit (HELOCs) and second mortgages are
  deductible only if the borrowed funds are used to buy, build, or substantially improve the home securing
  the loan. This means you cannot use a mortgage or HELOC to buy a car, pay off credit cards, or for
  other personal expenses, and still deduct the interest. Be sure you can prove what the borrowed funds
  were used for when you took out the loan.
• Prepaid mortgage interest – on the original purchase or refinance of property, depending on the date
  of the month you close.
• Points or Origination Fees – deductible for points paid up front or at closing, either by you or by the
  seller, depending on the circumstances of the loan.
• Real Estate Taxes – current or prepaid real estate taxes may be deductible as part of itemized
  deductions. However, federal tax law currently limits the deduction for state and local taxes (SALT),
  including real estate taxes, to $40,000 per year.
• Mortgage Insurance Premiums – sometimes known as MIP or PMI. Under current tax law, the
  deduction for mortgage insurance premiums has been extended through recent legislation and may be
  available depending on income limits.
• Cancellation of Mortgage Debt – Certain forgiven mortgage debt on a qualified principal residence
  may be excluded from taxable income, subject to current limits and eligibility requirements.
• Capital Gains Exclusion – profits from the sale of a personal residence may qualify for exclusion up to
  $250,000 for single taxpayers and $500,000 for married couples, provided you have lived in the
  home for at least two of the previous five years, with certain exceptions for military service, change in
  employment, medical reasons, or other unforeseen circumstances.

Vacation Home Rentals

If you rent a home to others, you usually must report the rental income on your tax return. But you may not
have to report the income if the rental period is short and you also use the property as your home. In most
cases, you can deduct the costs of renting your property. However, your deduction may be limited if you also
use the property as your home.

The following is some basic tax information that you should know if you rent out a vacation home:

Vacation Home Defined

A vacation home can be a house, apartment, condominium, mobile home, boat, or similar property.

Schedule E

You usually report rental income and rental expenses on Schedule E, Supplemental Income and
Loss.

Used as a Home

If the property is “used as a home,” your rental expense deduction is limited. This means your
deduction for rental expenses cannot be more than the rent you received. For more information about
these rules, see IRS Publication 527, Residential Rental Property, or speak with a tax professional.

Divide Expenses

If you personally use your rental property and rent it to others, special rules apply. You must divide your
expenses between the rental use and the personal use. To determine how to divide your costs,
compare the number of days for each type of use with the total days of use.

Personal Use

Personal use may include use by your family. It may also include use by any other property owners or
their family members. Use by immediate family members who pay less than a fair market rental price is
also considered personal use.

Schedule A

Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may
include costs such as mortgage interest, property taxes, and casualty losses.

Rented Less than 15 Days

If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to
report the rental income. It is tax-free, regardless of how much rent you receive.

Also, remember to keep receipts, settlement statements, and any other purchase documents when buying,
improving, or refinancing a home for as long as you own the home and for several years after you sell it. These
expenses establish your basis (what you paid) for the property. This documentation may reduce or eliminate
taxes owed when you sell the home. Keep these purchase and improvement records in a safe place so you
can provide them to your tax professional or the IRS if questions arise.

Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.

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