Friday, August 18, 2006
Own a home, grab the tax breaks
Own a home, grab the tax breaks
By Leonard Wiener
Posted 8/15/06
Related Links
· Retirement taxes: pay now or later?
· Tax traps can snare your capital gains
· Capital-gains tax difficulties
· Perpetual family trusts
· Kiddie tax changes
· More from Money & Business
The housing market may swell and ebb. But Uncle Sam keeps giving.
When President Bush last month decided it was time to address the NAACP, one message that won applause was endorsement of the American real-estate ideal.
"Owning a home gives people a stake in their neighborhood, a stake in the future," he declared.
The tax code backs up reverence for owning your abode with tax deductions for mortgage interest and property tax that in effect reduce your monthly bill. And some or all of your profit when you sell may face no tax at all.
An analysis released in late June by economist Robert Dietz of the National Association of Home Builders calculated that about 35 million households claimed $338 billion in mortgage deductions on 2003 returns, an average of $9,650. About 39 million deducted $119 billion in real-estate tax, an average of $3,000.
California led the nation in mortgage deductions with a statewide average of about $14,000 and a whopping $35,000 in the San Jose area.
High home prices and stiff real-estate taxes pushed New Jersey to the top spot in property-tax deductions, with an average of $6,000.
The builders played a political card in breaking out by congressional district the extensive use of the deductions. Some economists and tax reformers say the incentives encourage buying bigger homes than needed and boost prices by turning homes into a tax strategy. But howls from homeowners and real-estate groups restrain any moves to curb the breaks.
Losers? The five congressional districts making least use of the mortgage deduction were all in the New York City area, where renters loom large, highlighting the left-out feeling many non-owners sense.
"Deductions for home interest and property tax are often what allow first-time buyers to make a transition from taking the standard deduction to itemizing deductions," says Maggie Doedtman, a senior manager at H&R Block.
Melonie Loeb, a 30-year-old single mother in Overland Park, Kan., and fellow Block employee, took on a three-bedroom ranch in 2004, allowing her to deduct $16,141 in itemized deductions on her 2005 return. That eclipsed the $7,300 head-of-household standard deduction she would have taken as a renter.
Loeb is relieved that her 5-year-old daughter "can be loud without disturbing the neighbors." But she has also bought into the game plan of building equity. "The money I spent in rent went nowhere," she says.
Even revered breaks, however, have limits.
IRS Publication 530 provides a tax overview for first-time owners. Publication 523 covers selling a home. Publication 936 explains mortgage and home-equity deductions.
By Leonard Wiener
Posted 8/15/06
Related Links
· Retirement taxes: pay now or later?
· Tax traps can snare your capital gains
· Capital-gains tax difficulties
· Perpetual family trusts
· Kiddie tax changes
· More from Money & Business
The housing market may swell and ebb. But Uncle Sam keeps giving.
When President Bush last month decided it was time to address the NAACP, one message that won applause was endorsement of the American real-estate ideal.
"Owning a home gives people a stake in their neighborhood, a stake in the future," he declared.
The tax code backs up reverence for owning your abode with tax deductions for mortgage interest and property tax that in effect reduce your monthly bill. And some or all of your profit when you sell may face no tax at all.
An analysis released in late June by economist Robert Dietz of the National Association of Home Builders calculated that about 35 million households claimed $338 billion in mortgage deductions on 2003 returns, an average of $9,650. About 39 million deducted $119 billion in real-estate tax, an average of $3,000.
California led the nation in mortgage deductions with a statewide average of about $14,000 and a whopping $35,000 in the San Jose area.
High home prices and stiff real-estate taxes pushed New Jersey to the top spot in property-tax deductions, with an average of $6,000.
The builders played a political card in breaking out by congressional district the extensive use of the deductions. Some economists and tax reformers say the incentives encourage buying bigger homes than needed and boost prices by turning homes into a tax strategy. But howls from homeowners and real-estate groups restrain any moves to curb the breaks.
Losers? The five congressional districts making least use of the mortgage deduction were all in the New York City area, where renters loom large, highlighting the left-out feeling many non-owners sense.
"Deductions for home interest and property tax are often what allow first-time buyers to make a transition from taking the standard deduction to itemizing deductions," says Maggie Doedtman, a senior manager at H&R Block.
Melonie Loeb, a 30-year-old single mother in Overland Park, Kan., and fellow Block employee, took on a three-bedroom ranch in 2004, allowing her to deduct $16,141 in itemized deductions on her 2005 return. That eclipsed the $7,300 head-of-household standard deduction she would have taken as a renter.
Loeb is relieved that her 5-year-old daughter "can be loud without disturbing the neighbors." But she has also bought into the game plan of building equity. "The money I spent in rent went nowhere," she says.
Even revered breaks, however, have limits.
IRS Publication 530 provides a tax overview for first-time owners. Publication 523 covers selling a home. Publication 936 explains mortgage and home-equity deductions.
