Real Estate Tax Questions

Owning real estate can offer significant tax advantages, particularly for people who itemize their returns. Tax deductions for mortgage interest and property taxes advantage homeowners since they pay down the principal on their home loans. Investors may get extra deductions for insurance, repair expenses, mileage and depreciation. Even though the tax code written by the Internal Revenue Service (IRS) can be overpowering, taxpayers who have real estate can benefit from getting some basic understanding of potential deductions and benefits.

How Much Mortgage Interest is Deductible?

Mortgage interest paid on a home can be deducted for a primary residence as well as for second homes and rental properties. According to the IRS, all home mortgage interest can typically be deducted, however exactly how much can be based on the amount and date of the mortgage and also how the profits are used. Mortgages given before 1987 have different rules from those originated since then. Those obtained since 1987 for the purposes of buying, building or enhancing a first or second residence and totaling less than $1 million have been deductible. Rental properties often qualify for mortgage interest deductions under business-related rules. Interest paid on home equity loans and lines of credit up to $100,000 also is generally deductible, as of 2010.

How Much Will I Pay for Capital Gains Taxes Should I Sell?

Many homeowners who have owned their property for a significant period of time may be concerned about paying capital gains taxes when it comes time to sell their home. The IRS allows homeowners to exclude the profits realized from the sale of a key home–provided that ownership and use qualifications are met–up to a maximum of $250,000 for single filers and $500,000 to get joint-filing taxpayers, as of 2010. The ownership test asks whether you have owned the home for two from the previous five years, and the use test demands that you have lived in the home as your primary home for two of the previous five years ahead of the sale.

What Tax Advantages Do Landlords Receive?

As owners of rental real estate, landlords must record income received from tenants each year. To counteract this potentially higher tax burden, landlords can deduct many expenses resulting from the maintenance and ownership of a rental home. When a mortgage is owed on the house, interest is generally deductible. Unlike owner-occupied houses, landlords can deduct the cost of insurance each year as well as repairs, utilities and upkeep fees. Property taxes, advertising and travel expenses are also generally deductible for landlords. Depreciation is another tax benefit landlords have that homeowners don’t. Depreciation entails a yearly deduction for the cost of income-producing property, according to the IRS.

How Much Cash Will Be Withheld When I Sell Your Home in California?

When a residence is sold in California, the state Franchise Tax Board demands that 3.33 percent of the sale price be withheld for prepayment of state income taxes, as of 2010. This principle applies to houses sold for over $100,000. Exceptions apply to foreclosures, banks acting for a hope and particular qualified sellers. Withholding rates are higher for banks, corporations and non-California partnerships. A real estate escrow representative completes the paperwork and also informs both seller and buyer of the amount to be withheld in closing.

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