The LARGEST online resource for all your home financing and relocation needs.
Find the best rates today!
Tax Tips for Home Buyers and Sellers in 2005Get today's rates from 4 lenders.
Primary residence buyers and sellers understand the fundamental tax benefits of owning a home. Many though aren't aware -- beyond the typical deductions of mortgage interest and real estate taxes -- what and when other home buying or selling expenses can be deducted. The second step in determining the timeline for claiming an expense is separating deductions that can be taken now, or costs that must be deferred that are considered part of the basis of owning a home.
Basis is the starting cost for figuring a gain or loss when you sell your home. This starting cost is also used to determine depreciation if you use part of your home for business. Basis must be fair market value. Certain costs can be added to your basis or subtracted, which are called adjustments. Increases to adjustments are: putting an addition on your home, paving a driveway or installing central air-conditioning. Decreases to adjustments are: Casualty loss not covered by insurance, payments received for an easement granted, or depreciation if home is used for business or rental.
If you sold a home in 2005 the first step in deciding which column a home buying or selling expense goes under is to take a good look at the RESPA or Real Estate Settlement Procedures Act form you received at closing or escrow. Take your RESPA and other home buying or selling expenses that you feel might apply to an experienced tax accountant, so they can organize and separate deductions from costs and eliminate nondeductible items. Deferred costs that figure into the basis of a home benefit sellers in the tax year they sold. Some of the out of pocket costs incurred by buyers in the purchase of a home might have to be delayed, which can come as a surprise to buyers.
To claim deductions you must itemize on Schedule A form 1040 and under IRS rules if you itemize you can't claim the standard deduction. To see more tax information for first-time homeowners pick up Internal Revenue Form 530 for 2005. Many deductions or costs have exceptions that you must meet to claim a deduction or cost basis expense. Here are some basic guidelines that buyers and sellers should be familiar with before entering a contract to purchase or sell a home.
Don't plan on taking as a cost or deduction:
Cooperatives offer many tax benefits for homeowners, but they do have special tax rules. Consult a qualified tax accountant who specializes in cooperatives.
The IRS requires that you keep records that affect the basis cost and deductions until the limitations for income tax returns expires, typically a set period of time after you sell your home.