Certainly! Let’s explore the tax implications of buying and selling real estate:
Buying a House:
- Closing Disclosure Form: When purchasing a home, the Closing Disclosure Form is crucial. It replaces the old HUD-1 “Settlement Statement.” This document provides a comprehensive list of incoming and outgoing funds during the closing process. It helps determine the basis of your new home and what you can deduct on your taxes.
- Tax Benefits for Homeowners:
- Qualified Home Mortgage Interest: As a homeowner, you can deduct mortgage interest payments.
- Points Paid on a Loan: Points paid during the home purchase process are also deductible.
- Real Estate Taxes: Property taxes paid can be deducted.
- Private Mortgage Insurance: If applicable, you can deduct PMI premiums.
- Other Tax Advantages:
- Penalty-Free IRA Withdrawals: First-time homebuyers under 59½ can withdraw from their IRA penalty-free.
- Residential Energy Credits: You may qualify for energy-related tax credits.
- Keep an eye out for Form 1098, which reports mortgage interest and points paid.
Selling a House:
- The Closing Disclosure Form is essential for sellers too. It affects your basis, which impacts gain or loss calculations when reporting the sale.
- Form 1099-S: Sellers receive this form if the gain on the home sale isn’t entirely excluded from income.
- Tax-Free Gain: If you meet certain conditions, up to $250,000 (single) or $500,000 (married) of gain from selling your home can be tax-free.
- Keep Receipts: Retain receipts for closing costs and home improvements to prove increased basis, which can reduce taxable income upon sale.
Remember, always consult tax professionals or IRS publications for personalized advice. 🏠💰
For more detailed information, you can refer to the IRS Publication 523 “Selling Your Home”.12
