Surprising Tax Issues

Buying a home opens up a whole new world of tax advantages. In a recent survey of people who bought homes in the last year, 79% of them said that the mortgage interest and property tax reductions were a very important part of their decision.
I would highly recommend that you speak to a tax pro before making any real-estate move. Planning and timing makes all the difference in the world and could really impact your decision to move or not.

Here is a life of moves in the real-estate world that might trigger surprising tax issues:

1. Refinancing    Due to the low interest rates that have occurred this last year the refinancing spree has sky-rocketed as well. To refinance means that you embarking into a lower interest rate mortgage and your monthly payments tend to be lower each month or you will continue with the same price a month but be able to pay your home off quicker. The main problem is that homeowners forget that the tax deduction based on your mortgage interest is the largest tax perk of the home. Most people are able to deduct 100% of the interest they pay on a mortgage, up to one million dollars. If you deduct the interest that you are paying you will also be reducing your mortgage interest deduction. Less than 30% of homeowners actually take their mortgage interest deduction every year. We think the reasoning behind this is because at lower home prices and incomes the standard deduction is higher than the itemized deductions for which many would be eligible. If you itemize every year you might be surprised at your tax bill after your refinance.
2. Becoming a Landlord It is of no surprise to most of us that selling a rental property at a profit will trigger your taxes. What people don't realize is that becoming an "accidental landlord" still has its responsibilities. There are tax implications for being a landlord even on a short term stay that should be researched and respected. Rental income is always subject to regular income taxes, federal and state. You might also be required to obtain a business license and pay taxes on it as a landlord. Some municipalities are also requiring landlords to pay hotel taxes, even if your tenants are staying for just a short time. This might be a cost that you can pass down to your tenants so do not look past it.
3. Remodeling When remodeling a home most people know they are to keep all receipts for tax records. I am here to tell you that you need to save them until you sell your home! The money that you put into redoing your home gets added to the purchase price so when you sell it brings down the amount IRS considers to be a profit gain and reduces your changes of incurring capital gains tax. What will surprise most of you is that remodeling your home now-a-days triggers local and state tax credits. This comes into play especially when the items you put in increase your home's efficiency such as: shower heads, toilets, dual-paned windows or even tank-less water heaters. If these are the types of upgrades you are looking into, talking into your state or even city's website is a good idea to see what tax credits and financial incentives you may qualify for. Even if you are remodeling other items such as the ones listed above, I still recommend looking into your options because you may be able to deduct the interest from the loan on top of your home mortgage interest deduction. 
4. Renting When thinking about renting a home most people do it to save money until they can buy a home. However, there are people out there who have sufficient income and stability to own a home yet they have not developed a sense of urgency to jump on it for various reasons. I do not recommend suggesting to someone that doesn't want to own a home to do so, solely for tax reasons. What you fail to realize is that sitting on the fence and continuing to rent instead of buy may be hurting your financial status more than you think. Some experts say that "the average American renter works through the end of April just to earn enough income to pay taxes, federal, state, local, and sales." As you continue to move up the income ranks, talk to a professional and see if owning a home may help you get relief. 

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