This is a tough time for the real estate market and it’s a tough time for Realtors. One of the great sales pitches to home buyers is that Uncle Sam will subsidize your home purchase with certain expenses being tax deductible. But be careful because a lot of what you spend to have your own home is not tax deductible. Here are some points you need to remember.
FIRST, WHAT IS A HOUSE?
First, understand what the IRS considers to be a home that offers some tax deductible expenses. The IRS says a home can be an actual free-standing house, or a condominium, or a cooperative apartment which may also be called a “coop” or a mobile home, houseboat or even a house trailer. Each “home” must contain a sleeping space, a toilet and cooking facilities. So while an RV can be a home, a “toy hauler” would not be a home because it lacks a toilet and more.
WHAT IS DEDUCTIBLE
The IRS says the costs that are tax deductible include state and local real estate taxes on your home subject to a $10,000 limit, any home mortgage interest you pay that fall within the limits, and mortgage insurance premium payments. You should talk to a tax professional to be sure you know how much you can deduct on your taxes.
YOUR EXPENSES THAT ARE NOT DEDUCTIBLE
Unfortunately there are a lot of expenses connected with home ownership that are not tax deductible. Here’s a list of non-deductible expenses:
- Insurance, other than mortgage insurance, including fire and comprehensive coverage, and title insurance
- The amount you paid that was applied to reduce the principal of the mortgage
- Wages you pay for domestic help
- The cost of utilities, such as gas, electricity, or water
- Most settlement or closing costs when you buy
- Forfeited deposits, down payments, or earnest money
- Internet or Wi-Fi system or service
- Homeowners’ association fees, condominium association fees, or common charges
- Home repairs
After looking over that list you can start to understand why so many people decide to only rent. And you can also understand why many buyers steer clear of homes that are part of a home owners’ association where you might have to pay for facilities they’d never use. And, you can also understand why fixer-uppers are shunned by many buyers.
CAN YOU HANDLE THE COMMITMENT?
It’s not a joke that buying a house is the biggest purchase most families will ever make, so be sure you can handle the commitment. Have a budget that includes maintenance and repairs and be aware of the cost of utilities.
THE LESSON CARRIES OVER TO YOUR TAXES
These lessons about money and budget management also carry over to your taxes. You need to put aside money to pay your taxes each year. But if you have trouble with your tax debt there are some options including the IRS Fresh Start Initiative and the IRS Offer In Compromise Program.
While we can’t help you with your house budget we can help you with your tax debt. Start by calling us for a free consultation with one of our tax resolution experts. In 15 minutes or less, and at no charge, we’ll tell you if you can qualify for the IRS Fresh Start Initiative or the IRS Offer In Compromise Program. In the video below, one of our tax resolution consultants discusses what will happen during a free consultation about the IRS Offer In Compromise Program and the IRS Fresh Start Initiative. And as you might expect, your housing costs are part of the conversation.
Here’s the direct phone number to call Tom at our office: 949-359-0810
Or, you can call our general number on this page to reach any of our tax resolution experts about the IRS Fresh Start Initiative or the IRS Offer In Compromise.