Your Property- Taxes and Improvements
There are so many reasons to own a home. Here are just some of the financial benefits.
If you plan on making home improvements for medical reasons, like adding a handrail or wheelchair access you can likely write them off on your income taxes. Property owners should keep in mind that if you add on to a building or build additional buildings it could increase your tax assessed value and therefore your property taxes.
If you’re disabled or of retirement age you might be eligible to pay lower property taxes. The program is available to citizens who are 61 years of age and older or retired from gainful employment by reason of disability, with an income of $40,000 or less. Learn more here: https://www.co.pierce.wa.us/702/Senior-Citizens-Or-Disabled-Persons
If you plan to add energy efficiency to your property such as: solar panels, water heaters, geothermal heat pumps and other eco-appliances, new doors and/or windows you could receive a tax credit as well as a rebate from your city and/or utility provider. Also, by adding these efficiencies you’re saving every month on your utility bill and causing your home to appreciate(increase in value). Before, when you were renting, you might’ve had a landlord that wouldn’t upgrade to eco-friendly appliances and therefore you were wasting money with older toilets that flushed too much water, for example.
If you decide to add solar panels, up to 30% of the cost could be paid for by the government. Also, you can sell electricity back to the utility provider and get paid every month.
When you are ready to sell your property, you may have to pay capital gains tax. Taxes paid on the amount profited when the property is sold. If you’ve lived in the home for two of the last five years as your primary residence, you’re exempt from paying the capital gains tax on profits in the amount of $250,000 for a single person and $500,000 for a married couple. If the profit exceeds those thresholds, you’re still required to pay tax on whatever the amount over those thresholds equates to.
If you haven’t lived in the property, because it’s either a rental, vacation home or other investment property, you still may be able to defer the tax through a 1031 Tax Deferred Exchange .
Rental or income producing properties will be reported on your Schedule E, for these properties tax write offs usually include: Mortgage interest paid, expenses for maintaining the property, as well as insurance. Expenses for maintaining the property include things like: paying a property manager or paying for repairs on the property.
You may also deduct mortgage interest paid on your tax return. You can also deduct property taxes. There is even the possibility of deducting taxes on interest paid on a home equity line of credit. Always keep all your receipts and records for any improvements you make. Speak to your CPA or tax preparer to learn more. If you don’t have one, get in touch with me for a referral. The tax laws are always changing and if you’re planning to take advantage of any of these write offs or credits, it’s a smart idea to consult with a CPA because they’re knowledgeable about the most update laws.
Another potential tax benefit would be writing off the expenses of moving. If you moved to relocate for a job, you might be able to write off those expenses. Such as paying to rent a truck, paying movers, renting temporary housing, airfare, and more.
Another great benefit of owning a home is peace of mind. Most mortgages these days are 30 year fixed rate mortgages. That means your interest rate is not going to change. So your payment will remain relatively the same year after year. The only two things that will increase your payment are within your escrow account: property taxes and home owner’s insurance. This beats having a landlord increase your rent every year!
In Pierce County residential real estate has steadily appreciated at a rate of 9% each year. So you’re building equity when you buy a house. That equity can even be turned into “real money” with a home equity line of credit.
Some more perks is that having a mortgage is considered “good debt” and is likely to boost your credit score. Also, often times when a home owner’s insurance policy is bundled with auto insurance it will save you money on both policies.
Questions for you:
What improvements have you made on your home?
Have you ever used the excise tax exemption or a 1031 exchange before?