Tax Considerations
The old adage goes along the lines of this: nothing is certain in life except death and taxes! Tax is of key importance in any real estate negotiation the IRS have various rules regarding what is taxed by them and what can be deducted from your tax return.
Tax Deductible?
Firstly many people want to know whether seller paid points are tax deductible. The answer is yes they are, however to qualify for the paid points deduction the seller must match the four criteria laid out by the IRS. If a buyer takes up the option of paid points deduction they must reduce their basis of their home.
Second Home Taxes?
Having a second home no longer as uncommon as in past decades and for most people who are in the property market to purchase a second home they want to know in what ways having a second home will affect their taxes. More importantly they want to know if taxes on second homes deductible. In short mortgage interest and property taxes are deductible against current income taxes. However should you sell your home for a loss, the difference is not tax deductible.
Inheriting Property
Inheriting a property also carries with it tax considerations. When children inherit a property, the IRS determines the difference between the cash price and futures price in the property on the date of the owners death. This is known as the basis of the property. If the child, or children, sells the house they are then required to pay capital gains tax for whatever profit made above the basis. Estate tax can also be paid on inheritance, for estates valued over $675,000.
Buying A Home Fees
Home buying fees are also tax deductible and these can include a large list of items, however they are only deductible when you sell the home you purchased, and are calculated with regard to the properties basis. Some items that can be deducted this way include, loan-application fee, credit report, appraisal fee and attorney fees.
If you want to find information about the tax system, or just want IRS publications you can visit their website www.IRS.gov; or call by calling 1-800-TAX-FORM.
