The summer months are prime season for buying a house or selling one. For many, it’s time to make a big move and settle down before the next school year begins. Did you know a change of address can also mean a change on your tax return? Becoming a first-time homeowner or moving homes are both life events that can make a tax impact. Keep reading to find out what that means for you.
Moving Right Along: The tax code includes a Home Mortgage Interest Deduction that provides a deduction for any interest paid on a loan secured to buy a home, a second mortgage, a line of credit or a home equity loan. In most cases, the entirety of the interest is deductible if you meet at least one of three categories depending on the date of the mortgage, the amount of your mortgage and how you use the mortgage proceeds. You must file a Form 1040 and itemize deductions on Schedule A. Also, the mortgage must be a secured debt on a qualified home in which you have an ownership interest. For more details, see IRS Publication 936.
Home Sweet First Home: First-time homebuyers should take note of the many tax benefits available to them. In addition to the Home Mortgage Interest Deduction, you may be able to get a tax credit for energy saving home improvements and deduct real estate taxes paid at settlement, closing or to the taxing authority during the year. Military members should also pay attention to taxes and their housing allowance. If the allowance is not taxable, military can still deduct real estate taxes and home mortgage interest. The excitement of buying a home, especially your first one, is often coupled with lots of details you may not be familiar with. The IRS has prepared a special bulletin for homeowners including what you can deduct and other tax benefits. Check out IRS Publication 530.
New Beginnings: Sometimes life takes you and your spouse on different paths. In the event of divorce, the sale of jointly-owned property such as a house may have an impact on your tax return. You must report your share of the recognized gain or loss on your tax return for the year of the sale. If you transfer your home to a spouse or ex-spouse as part of a divorce settlement, you are considered to have no gain or loss and do not need to report anything on your tax forms. For more information, read IRS Publication 504.