Home ownership is something that people really think hard about before even attempting it. They think about all the hurdles like finding a good neighborhood, the price of the house, and where they are going to get it. And of course, like everything else, they think about how much it's going to cost in taxes. We are here to advise you and indirectly help them turn their tax nightmare into an opportunity to make money.
When your client purchases a house, almost all the expenses associated with the house are not tax deductible except for one aspect. The IRS says that the interest that your client pays on their house payments is deductible. The interest is part of every monthly payment your client makes for their house loan. If your client bought the house on any day other than the first of the month, they incur daily interest for every day of the month that is tax deductible. Now here is how your client makes money on this. The IRS states in most cases, things like loan discount points and origination fees are tax deductible to the buyer, regardless of who pays them. This is an important factor because sometimes on HUD settlement statements, the seller is the one paying for them. However, it is not the seller that can claim them as deductible, but the buyer. These things can add up to almost 1% of the value of the house, and that's a lot of money your client just saved as they can claim them as tax deductions.
Another tax-deductible interest that can cut your client's taxes is off a loan that they may acquire to repair or maintain their home. Usually in the first few monthly payments of the loan, they mostly consist of interest, so that can really help your client in the first couple of years, as most of that is tax deductible. In addition, your client can take out home equity loans to pay off personal loans that your client may have taken out with a higher percentage of interest. For example, if your client bought a car and they had taken out a loan that included a 15% interest, your client can take out a home equity loan and pay their car loan off. The interest on the car loan is not deductible, but the interest on the home equity loan is. So your client saves money there also. Your client needs to be careful when taking out home equity loans, realizing that your client has put their house on the line here as collateral.
The act for selling a home can reap your client many financial benefits as well. There is only one requirement when it comes to selling their home. Your client has to have lived in this house for at least two years out of the five years prior to sale as their principal residence. The way to make money on this is by buying a worn out house and working on that house for the next two years day and night and then when the two years are over, your client sells it. Guess what! All the money up to $500,000 for married couples and $250,000 for single men or women that your client makes off the sale as profit or gain is tax exempt. This means your client pockets all the cash. The only requirement right now is the two-year law. Your client has to live in the house for two years unless a medical condition forces them out.