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Mortgage, Taxes and Insurance Payments

Right At Home Daily: Finding It: Borrowing Money
By Margaret Crane for Right at Home Daily

In life, there are two unavoidable realities: death and taxes. At least you can do something about your taxes.

Your biggest tax benefit is the ability to deduct the mortgage interest you pay up to $1 million on your principal residence or a second home. You may also deduct the interest paid on a home equity loan or second mortgage up to $100,000.

All points paid to the lender are tax deductible in the year you buy your home. If you refinance your home, the points are still deductible -- over the life of the loan. If you refinance or sell your home, you may take any remaining points paid in the year of the refinance or sale.

Local property taxes paid are also deductible for any home you own. On the flip side, if your city decides to issue a property tax refund, you'll be required to pay a tax on the amount refunded.

The big tax break: If you sell your home and earn a profit of up to $250,000 (if you're single) or up to $500,000 (if you're married), you will owe no tax on your capital gain. You must, however, live in your home for at least two of the past five years.

If you sell after 22 months, and you do not move because of your job (you must move 50 miles or more) or because of medical reasons, you'll owe tax at your long-term capital gain rate, either 20 percent (if you're in the 28 percent bracket or above) or 10 percent (if you're in the 15 percent bracket or below). If you sell within a year for a profit, you'll owe taxes based on your marginal tax rate.

A move to a new home for a full-time job (at least 39 hours per week), grants you a tax break on moving expenses. You may deduct travel and transportation costs, lodging en route, as well as the cost of temporarily storing furniture. Mileage criteria change year to year. For the current mileage rates go to www.IRS.gov.

What you should know about homeowner tax breaks:

1. When you add the profit made on your home, don't forget to add the costs of purchase and sale. The costs of purchase include the points you paid the lender and any fees paid to your agent. The costs of sale include things like the commission paid to the broker and any advertising fees.

2. Capital improvements may be deducted from the sales price as well when calculating your actual profit. But, decorating doesn't count. For example, you may subtract the cost of a new roof but not for buying furniture.

3. Homeowners insurance, umbrella liability insurance, mortgage or credit insurance, private mortgage insurance and other types of insurance are never tax deductible.

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