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Tax Information

63 Silver Street  Waterville, ME  04901                     207- 873- 0751                                                      info@affiliatedrlty.com

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Know your terminology:
Check out our updated Glossary!

    Buying a home offers considerable tax advantages. This is a major factor in the decision to purchase.

    Deductions...

    As a homeowner, you can deduct the following items from your taxable income:

      Mortgage Interest: Since most of your mortgage payments during the first few years goes toward interest, this is usually a substantial deduction.

      Points: The amount paid to the lender in percentage points in the year of purchase can be deducted as long as the amount is normal for the area and the loan is to purchase rather than re-finance.

      Property Tax: Tax assessed against a property by local governments. One of the four basic monthly housing costs (PITI).

      Home Improvement Loan Interest: If you take out a loan for improvements on your home, you can deduct the interest paid. Deduction for points must be spread over the life of the loan.

      Home Equity Loan Interest: If you use your home as collateral for a loan, you can deduct the interest paid.

      Depreciation: If you rent part of your home or use it for business purposes, you may be able to deduct the depreciation value.

      You must itemize these deductions, using Schedule A of Form 1040. You also need to file Form W-9 to allow the lending institution to report interest received to the IRS. For the latest information on tax regulations, forms and specific circumstances, contact a CPA, tax attorney, or your local IRS office.

    Capital Gains...

      If you purchase a home for more than the seller paid, the seller incurs a capital gain. A capital gain is taxed as income. The law is complex, but sellers can often defer their taxes by purchasing another home within a specified period of time. Under many circumstances, some of the proceeds from a sale should be held to guarantee the seller pays the required taxes. If the taxes are unpaid, the government can put a lien on your new home and the taxes become your responsibility! See a real estate attorney for more information.

 

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