Whether you’re a home buyer or a seller, what are some of the tax deductions you can take advantage of?
When you’re selling a property, all of your fees and costs associated with selling it can be deducted. These can include commission fees, escrow fees, title fees, and any of the costs of fixing it up. You want to keep all of this information and give it to your accountant to make sure you maximize your profit from the home.
If you’re selling your primary residence, you can actually take up to $250,000 (if you’re single), or $500,000 as a deduction off of any gain you make from the sale of the home. People sometimes move every couple of years specifically to take advantage of this deduction. If you turn that property into an investment property, you can also rent it out for two years before selling it. The only caveat is that you must have lived in the property for two out of the last five years overall.
If you’re ever unsure, always check with an accountant.
If you’ve rented out a property for five years and decide at that point that you want to sell it, but you don’t want to pay the capital gains tax, you can do what’s called a 1031 exchange. In this case, you would sell the property and give the profit to an intermediary for them to hold in a qualified intermediary account. From there, you would purchase another property of equal or greater value. This would allow you to defer any capital gains on the first property and put it into a different one. In theory, you could move into the new property after a period of two, three, or four years and it would then be considered your primary residence.
When you’re purchasing a property, all of the same variables apply. Your escrow fees, title fees, and mortgage interest can be tax write-offs, as well. You can also write off all of your mortgage interest when you’re living in the property year to year.
If you’re ever unsure, always check with an accountant to make sure you’re writing off the right things.
If you have any other questions about tax deductions or other real estate-related topics, feel free to give me a call or send me an email. I'd be happy to help you!
