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Strategies for home owners

Written by Posted On Tuesday, 22 November 2016 02:28


Mortgage points. Do you plan to purchase a new dwelling around year’s end? Wrap things up by Dec. 31. That will qualify you for an itemized deduction on Schedule A of Form 1040 for the current year if the only way you are able to obtain a mortgage is to pay points (each point equals one percent of the loan amount) to a lending institution.


Take an immediate deduction in full for up-front interest payments  incurred to obtain a loan to purchase, construct or improve your main home (as when you add or remodel a room), as opposed to, say, a second home that you use as a vacation retreat, or property for which you charge rent. 


Refinancing an existing mortgage. Do that and you need to familiarize yourself with a different set of rules. Use the loan proceeds to improve your home and you can fully deduct the points. Refinance just to take advantage of lower interest rates and you must claim points only in dribs and drabs over the loan’s full term—divide what you paid for points by the number of monthly payments you will make over the life of the loan.


Borrowers who refinance for second or third times frequently overlook sizable write-offs. Serial refinancers are entitled to immediately deduct what remains of the points from previous refinancings. But borrowers fail to recall those points because they don’t show up on the closing papers of new refinancings.


Typically, several thousand dollars fall right through the cracks. For refinancers who fall into a 30 percent federal and state bracket, every $1,000 they write off lowers taxes by $300—more than enough to pay for a pleasant night on the town.


Keep track of spending for home improvements. They yield no current deductions but are added to your home's cost basis—the figure used to determine gain or loss on a sale of the property. Hence, improvements reduce any taxable profit when you eventually sell.


Like most home sellers, you’re well aware of rules that relieve you of taxes on a home-sale gain of as much as $250,000 for a single person or a married person filing a separate return and up to $500,000 for a married couple filing a joint return. But many of you are unaware that anyone with a gain greater than the exclusion threshold of $250,000 or $500,000 is stuck with taxes on the excess. No longer are sellers allowed to postpone taxes on their entire gain by buying another home that cost more than what they received for the one sold.


IRS audits. In the event the IRS questions how you calculated the gain, the audit will be less traumatic and less expensive if you’ve kept meticulous records that track the dwelling's basis. Those records should include what you origin­ally paid for your property, plus settlement or closing costs, such as title insurance and legal fees, as well as what you later shell out for improvements, such as adding a room or paving a driveway, as opposed to routine repairs or maintenance that adds nothing to the place's value, such as painting or papering a room or replacing a broken windowpane.  


Bundle ordinary repairs into a bigger job. It might pay to postpone repair projects until they can be done in connection with an extensive remodeling or restoration project. Adding the smaller jobs into the bigger job may allow you to include some items that would otherwise be considered repairs, such as the cost of painting rooms.


This article is excerpted from “Julian Block’s Home Seller’s Guide to Tax Savings,” available at










Website:  /Email: This email address is being protected from spambots. You need JavaScript enabled to view it.


Julian Block writes and practices law in Larchmont, N.Y., and was formerly with the IRS as a special agent (criminal investigator) and an attorney. He is frequently quoted inthe New York Times, the Wall Street Journal, andthe Washington Post, andhas been cited as: “a leadingtaxprofessional” (New York Times); "anaccomplishedwriter on taxes" (Wall Street Journal); and"an authority on tax planning" (Financial Planning Magazine).







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Julian Block

Julian Block writes and practices law in Larchmont, N.Y. , and was formerly with the IRS as a special agent (criminal investigator) and an attorney. He is frequently quoted in the New York Times, the Wall Street Journal and the Washington Post, and has been cited as "a leading tax professional (New York Times), "an accomplished writer on taxes" (Wall Street Journal), and "an authority on tax planning" (Financial Planning Magazine).


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