Tax Law and Benefits for Homeownership Tax Law

Tax Law and Benefits for Homeownership

Tax Law • Rules, laws and policies • They regulate the tax process • Charges are implemented on income, estates, and other services by the government • Tax laws can be applied directly or indirectly • Entities are utilized in the development and enforcement of tax laws

Tax Law and Homeownership Benefits • Tax law benefits home owners in diverse ways • Homeownership is an effective hedge against inflation • Income tax advantages • Financial benefits • Emotional satisfaction is achieved

Mortgage Interest Deduction • Interest is deducted on home mortgage • A limit is set to guide the deduction • Limited to specific home purchase and rehabilitation debt • Home equity debt also considered • The mortgage interest deduction only apply to homeowners

Property Tax Deduction • Deductions based on the homeowners’ property tax • Involves funds transfer to jurisdictions • Property tax lowered for the individuals • Homeowners gain a lot from the deductions

Imputed Rent • Gains on homeownership are not taxed • Buying an home leads to rent-free state • Exclusions are not effective on the rent acquired by landlords • Homeowners are considered to be renters • Federal revenue lowered by exclusion of imputed rent

Capital from Home Sales • Taxpayers required to pay tax on home sales’ profits • Homeowners exclude home sales profits from the taxable income • The limit of exclusion is $250, 000 for normal owners • Joint filers limited up to $500, 000 • Homeowners must satisfy other requirements for application of the exclusion

Energy Tax Credit • Applicable to homeowners who implement energy-efficient advancements • A credit of 10% is given on purchases of energy-efficient components • Special energy-efficient property also entitled to extra special credits • It helps lowers the amount of tax homeowners pay

Tax deduction on Home Maintenance and Repairs • Maintenance or repairs done on homes are not taxable • Value may be influenced by repairs and maintenance • The life of home is also prolonged by repairs and maintenance • Improvements are on homes are taxable hence nondeductible

Deduction for First Time Buyer • Down payment done by first time buyers sing their IRAs • A 10% penalty applied for pre-age withdrawals by IRS • IRAs funds can be utilized up to $10, 000 for single homeowners and $20, 000 for married people is utilized • People who in past two years had not owned principle residence qualify for thee deduction

Mortgage Insurance • Treated as a home mortgage interests • Insurance must be linked to home purchase debt • Certain requirements must be met for the deduction to be effective • The mortgage insurance need to be provided the legal bodies

AMT Considerations • Refers to alternative minimum tax • Homeowners are deducted interest based on AMT • Deductions made on home equity and mortgage debt • The two debts must be associated with a certain home for application of AMT

Home Office Deduction • Part of the home may be used for business purpose • Home costs associated with the section set for the business is excluded from taxation • Percentage of deduction depends on costs incurred depreciation, repairs and insurance • Homeowners benefit since the deductions are made on the taxable income

Moving Costs • Homeowners may move to other homes due to job requirement • A percentage of moving costs is deducted in this case • The IRS requirements must be met • Travel costs, housing expenses, and household goods storage fees are deducted

Effects of the Tax Exclusions and Deductions • Taxpayers who lie in the higher bracket benefit more • Financial gains are realized by the homeowners • Homeowners are able to pay other tax • Facilitates acquisition of homes

Conclusion • Tax law is used to regulate taxation • Tax law considers homeowners and subject them to diverse benefits • The deductions and exclusions influence financial gains, comfort, and income tax advantages. • The benefits depends on the level of the homeowner • Other impacts include increase in number of home owners.

References Carliner, M. S. (2012). Development of federal homeownership “policy”. Housing Policy Debate, 9(2), 299 -321. Harris, B. H. , Steuerle, C. E. , & Eng, A. (2013). New Perspectives on Homeownership Tax Incentives. Tax Notes, 141(12), 1315 -32. Rosen, H. S. , & Rosen, K. T. (2015). Federal taxes and homeownership: Evidence from time series. The Journal of Political Economy, 59 -75.