Tax Breaks

• First off, if you´re moving because you had to relocated due to a new job in a new city, you can deduct all of your moving expenses from your taxes. If you´re moving a large amount of belonging, this can save you thousands of dollars. Make sure you save all of your receipts from your move. Everything from boxes to packing tape to the movers, themselves can be deducted if you meet the requirements. In some cases, you can even deduct storage costs if the home you´re moving into isn´t ready on time. One catch though, you must also report any reimbursements that you get from your employer to cover moving expenses.

• There are major parts of buying a home that are also completely tax deductible. All of the interest that you pay on your yearly mortgage is deductible. For some people, this reason alone is enough of a reason to buy a home. What you save on your taxes with this one simple deduction has inspired millions to move from apartments to their own home.

• Your property tax that you must pay every year is also completely tax deductible. This can also save you thousands of dollars per year, depending on how much you pay in property taxes each year. If you´re a major land holder, this one tax break alone can save you tons of money.

• The points that you pay on your mortgage on closing day are also tax deductible. This is another very good reason to make sure you pay as much in points as possible and not try to roll your points into your mortgage. By paying them upfront, you can lessen the interest rate you have to pay for the life of your mortgage and then write off what you just paid on your taxes. It´s a win-win situation that can turn the unfortunate job of paying points into a good thing.

• Some tax laws are more complicated then others. There is a law currently on the books that says if you lived in your home for 24 of the last 60 months, then you can have a tax free profit on your home sale of up to $250,000 or $500,000 depending on if you´re married. Thanks to the incredible increase in the values of homes over the last five years, this profit margin is completely reasonable and available to the average home owner. The tax code law that gives this incredible bonus is IRS code number 121. There is no limit to the number of times during your life you can use this exemption, the only qualifier is that it not be used more than once every two years. Also, the residence terms do not have to be consecutive months. As long as you lived in that residence for 24 of 60 months, you would qualify, even if you never lived more than two months in a row in that home. There are even exceptions in place for those that serve abroad in the military.

There have been many instances of tax code changes in recent years that have changed the interpretations of some of these laws. A recent court case challenged what the IRS could consider to be a taxpayer´s permanent residence. They attempted to claim their $250,000 exemption on a home sale after they paid their capital gains tax. When they filed their complaint, it was denied, so they took the IRS to court. They ended up losing because the judge ruled that while the family did live in that particular residence, it wasn´t their primary residence since they never filed tax returns from that particular home. If you´re going to be asking for this capital gains tax exemption, you should have filed your taxes from that residence or you may run into problems having your exemption accepted.

A spouse is allowed to file for the larger $500,000 exemption in years when a home is sold and their partner has passed away. Normally, you would only be able to file for the smaller $250,000 exemption if you were single, but a special exemption was made for spouses who lost the other.

There is also an exemption on the books that helps couples who are divorced. If one spouse qualifies for the $250,000 tax break, the other spouse, even if they no longer live on the property that is being sold, qualifies, too. This is a little known and seldom used part of the tax code, but it can really help to save you a lot of money if you´re in this particular situation. If you´re in a situation where your spouse has kept the home but plans to sell it once the kids have grown up and moved out, then you can really benefit from this helpful clause in the tax code.

Some of the tax laws that you can take advantage of are downright vague in their wording. Another helpful clause says that if you have a piece of land, the code refers to it as a lot, next to your home and you sell that lot within two years of you selling your home, you can claim the capital gains tax exemption from your home on the lot sale. What makes this particular clause so strange is that it doesn´t specify how big the lot can be, but it infers that it has to be a "reasonable" size. It´s assumed that you couldn´t sell a 200 acre farm or a commercial property worth millions and simply call it a "lot" but the law doesn´t spell it out as well as it could.

There are also a slew of partial exemptions to the rules that can lead to you still being able to take advantage of this fantastic program. The IRS basically broke the exemption down into three main categories.

First, if you´ve had to move before your 24-month residency requirement has been filled due to a job relocation, then you qualify for a partial exemption.

The way the partial exemption works, say you lived in the home for 23 of the 24 months needed. You would get 23/24^ths of the exemption, either the $250,000 if you´re single or $500,000 if you´re married.

The second exemption put forth by the IRS includes selling your home before the 24-month residency requirement due to health reasons. Again, this one is pretty straight forward. The same math equation stated above works here, you would get the percentage of the tax break based on how long you did live in the home.

The third and final partial exemption is much cloudier. With this one, the IRS says that you can still claim the tax break if you sold you house before the 24-month requirement due to "unforeseen circumstances." While the courts are still battling over what those circumstances are, there have been a few clear cut cases of this clause being used. They include:

• An unfortunate death in the family
• Legal separation or an outright divorce
• Losing your job and becoming eligible for unemployment.
• Changing your job so that you can´t pay your mortgage anymore
• Unexpected twins, triplets, etc.
• Disaster relief or terrorist attack
• Any seizure of your property that was unwilling.

There are, and will be, many more cases that are going to go to court to try to expand the definition of "unforeseen circumstances" but for now, that is the sure-fire list.

In conclusion, there are many different tax breaks and benefits to owning a home that you just don´t get from other living choices. Sure, apartments are fine but when it comes time to pay Uncle Sam, you´re going to be happy that you have a real home. Consult a tax expert in your area to make sure you are taking advantage of all the tax perks that come with home ownership. Many of these tax codes are difficult to understand and some are downright obscure. Make sure you get what´s coming to you today!

GBrey