By Carla Olivo, USMC Spouse
It’s often said there are two things certain in life: death and taxes. And both are equally dreaded! Here is some guidance on the tax advantages of owning property.
Tax Advantages of Owning a House
The money you pay throughout the year in mortgage interest and property taxes is almost always deductible. Depending on your Adjusted Growth Income, your private mortgage insurance (PMI) may also be deductible.
Capital Gains Tax
When you sell an asset such as a home, you usually pay capital gains tax on any profits made from the sale. But homeowners may exclude from taxable income up to $250,000 or $500,000 for joint filers of capital gains if they meet certain criteria such as maintaining the home as a principal residence in two out of the last five years. They cannot have claimed the capital gains exclusion for the sale of another home during the previous two years.
Renting a Home You Own
Many military families purchase a home with the intent to rent it out when PCS orders come. You can deduct certain items when receiving rental income. Some of those include PMI, property taxes, maintenance costs, and overall depreciation. The rules on allowable deductions change every year, so make sure you research what is allowed at any given time.
Not really a downer, but something to be understood: the ever-changing complexity of taxes. Most people will transition from the 1040EZ form to itemized tax forms when they purchase a property. And that can often get more complicated. But the hassle is usually worth it based on the increase in tax deductions
Leave it to a Professional
Consult a tax professional for clarification and guidance on the latest IRS rules. Each year there are additions and changes to the deductions that are available, especially with home buying grants and programs. There are several tax professionals and companies that work with military families for free or at a reduced cost. Many large military installations offer military families free income tax filing assistance through the IRS sponsored Volunteer Income Tax Assistance (VITA) program.
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