TAX ADVANATAGES OF HOME OWNERSHIP

Congratualations on your purchase of a new home! For most taxpayers, owning one's personal residence represents the largest available benefit in tax savings and a cornerstone in the accumulation of wealth. From the purchase of your first home, to the sale of your last, congress has found it appropriate to allow certain tax advantages to the homeowner. What follows is a brief summary of some of these tax advantages. While deductions for interest and taxes may be the primary and most well-known benefits of home ownership, they are not the only source of tax savings. The law provides a deduction for damages to your residence due to a sudden, unexpected event. On the day of purchase, your settlement statement may contain charges that can be deducted from your adjusted gross income. In order to immediately benefit from these tax savings, you may instruct your employer to withhold less tax from your income by completing a W-4 claiming increased exemption allowance. The "tax basis" of your new home not only includes the purchase price, but also certain nonrecurring, non-deductible, settlement costs. The ""basis" is also increased over the years by various improvements, permanent or otherwise, made to your house and property. This ""tax basis" is important when considering selling your present home, and is used to determine your ""realized" gain. Taxpayers of any age can exclude from income up to $250,000 of gain ($500,000 for joint filers meeting certain conditions) from the sale of a home owned and used by the taxpayer as a principal residence for at least 2 of the 5 years before the sale. An employee or self employed individual may deduct certain expenses of moving to a new home if the move results from a change in the individual's principal place of work and if the distance and time (working at the new location) tests are met. The unreimbursed costs of movement of household goods and personal effects from the old residence to the new place of residence, and traveling (including lodging) from the old residence to the new place of residence, are above the line deduction, deductible from gross income in arriving at adjusted gross income. The new job site must be at least 50 miles farther from the taxpayer's old principal residence than was the old principal job site. If they did not have a full-time job before the move, the new job site must be at least 50 miles form their old residence. One can quickly realize from this short summary that the equity growth in a home is economically supported by tax savings, and the intent of the taxation laws is to preserve this savings by not taxing most home sales.