Ann Andrews has a been a CPA in Northwest Austin since 1980.
She likes to help her clients make sense of our complex tax and financial environment. You can reach her at firstname.lastname@example.org. Learn about the CPA firm at www.btascpa.com
Recharge Zone — Not Just for the Edwards Aquifer
We live in a fast paced world that seems to have escalating demands on us as business owners, as local community participants, as men, women, as husbands, wives, as fathers, mothers, as the role we have within our family at large, as American citizens, as men and women in our faith. We wear many hats depending on what day and time it is, and sometimes we are wearing several hats at the same time. We wonder how we will get it all done. How many more hours can we put into our day or days into our week. We feel so much responsibility for and to others.
In our culture women have for the last 60 or so years stepped into what had been primarily ‘ man’s world’ only she did not get to leave ‘women’s world’. She mostly has double duty to worldly job and keeping the ‘home fires’ burning.
Tax benefits of home ownership
Let’s talk about current tax benefits of owning a home, compared to renting. Years ago, there was a huge tax benefit to the mortgage interest and real estate tax deductions. Many people still get significant tax benefits from those deductions. But not everyone. Some taxpayers receive an almost equal benefit from taking the standard deduction. Other taxpayers may pay a lot of mortgage interest and property tax, but receive much less tax benefit due to deduction limits, low tax brackets, and the alternative minimum tax.
Some taxpayers who own a home but no longer have a mortgage get the best benefits from scheduling their real estate tax and charitable contributions in alternating years. This takes a little planning and analysis, but is often worth the work.
All taxpayers need to realize that the benefit of a tax deduction is only a fraction of its cost. For example, if you are in the 15% tax bracket, your $10,000 mortgage interest deduction probably saved you $1,500 tax. Is that a large enough savings to influence your decision to buy vs rent?
I recommend that you examine the pros & cons of rent vs buy with a lot more factors than a tax deduction. Where do you want to live? How much maintenance to you want to control and pay for? Do you want a temporary change? Where do you want to invest your money?
Tax implications of selling your home
We have an excellent tax law for home sales. If you have lived in your home at least two of the last five years, you can exclude some profit from selling your home. A single individual can exclude $250,000, and a married couple can exclude $500,000. There are some details that you need to confirm, but this is the general rule, and it provides huge benefits.
My comments are general. To get an actual tax benefit, you need to analyze your specific situation before making important financial decisions.