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Tax considerations
The
old adage goes along the lines of this: nothing is certain in life except death
and taxes! Tax is of key importance in any real estate negotiation the IRS have
various rules regarding what is taxed by them and what can be deducted from
your tax return.
Firstly
many people want to know whether seller paid points are tax deductible. The
answer is yes they are, however to qualify for the paid points
deduction the seller must match the four criteria laid out by the IRS. If a
buyer takes up the option of paid points deduction they must reduce their basis
of their home.
Having a second home no
longer as uncommon as in past decades and for most people who are in the
property market to purchase a second home they want to know in what ways having
a second home will affect their taxes. More importantly they want to know if
taxes on second homes deductible. In short mortgage interest and property taxes
are deductible against current income taxes. However should you sell your home
for a loss, the difference is not tax deductible.
Inheriting a property also
carries with it tax considerations. When children inherit a property, the IRS
determines the
difference between the cash price and futures price in the property on the date of the owners death.
This is known as the basis of the property. If the child, or children, sells
the house they are then required to pay capital gains tax for whatever profit
made above the basis. Estate tax can also be paid on inheritance, for estates
valued over $675,000.
Home buying fees are also
tax deductible and these can include a large list of items, however they are
only deductible when you sell the home you purchased, and are calculated with
regard to the properties basis. Some items that can be deducted this way
include, loan-application fee, credit report, appraisal fee and attorney fees.
If you want to find
information about the tax system, or just want IRS publications you can visit
their website www.IRS.gov; or call by calling
1-800-TAX-FORM.
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