Article
Home Buying Tax Benefits
They say that there are only two things you can count on in this world death and taxes. However, when it comes to owning a New York condominium home, it appears there may be a third thing also and that is the favorable treatment of New York condominium home ownership by the Internal Revenue Service. While purchasing your own New York condominium home most of the expenses are not tax deductible. Nevertheless there is one exception; The IRS says you can deduct interest in the year that it is paid, and that is usually part of each monthly loan payment.
Remember that if the day you purchase is on any day other than the first of the month, you will likely pay a charge for daily interest between the day of closing and the end of the month. Much more importantly, in most cases, loan discount points and origination fees are tax deductible to the buyer, regardless of who pays them. Look at lines 801 and 802 of your settlement statement and see if you hit the jackpot. This is a particularly unusual deduction because you get the benefit even if the seller paid your closing costs. Because origination fees of 1% and more are common, this can amount to much cash.
In general you can deduct interest charged on a loan used to acquire or improve your principal residence in the year that it is paid. In the early years of a loan most of your monthly payment is interest, so this can really add up. If you are in a 28% federal tax bracket this can have the effect of lowering your borrowing costs by almost a third, depending on which state you live in. This is truly nothing more than a subsidy to New York condominium homeowners, and it is a very popular deduction.
In addition, you can always deduct interest on an additional $100,000 of mortgage debt and use it. This allows you to tap into your New York condominium home equity for any purpose. This gives New York condominium homeowners the ability to do debt shifting. For example, if you live in an apartment and have a credit card balance of $10,000 at 18% interest, none of that interest would be deductible. Nevertheless, if you bought a house, obtained a New York condominium home equity loan for $10,000 and paid off the credit card, then all of the interest expense becomes automatically deductible.
Furthermore, the rate on the New York condominium home equity loan is likely to be around prime plus one or two, usually much lower than credit card rates. This same technique works with any and all personal debt, from car loans to consolidation loans with only one hitch. In every New York home equity loan, you have pledged your New York condominium house as collateral for the loan. If you fail to pay the payments as agreed, you could lose your house to foreclosure. So be careful in using this technique.
If you are married and have owned and occupied your principal residence for at least two of the past five years, you can earn up to $500,000 on the sale of that house and pay no federal income tax whatsoever. Unmarried singles get up to $250,000 tax-free. You can do this as often as every two years for the rest of your life. This is as good an excuse for getting married as I have ever heard.
Buy a fixer-upper in an up and coming new York condo neighborhood, work on it nights and weekends for two years, then sell it at a nice profit and pocket the cash, totally free of federal taxes. Moreover, most states recognize the federal exclusion, so you put the cash away tax-free. You do not have to re-invest, you do not have to be age 55, and you can do this every two years forever.
The one restriction is that you must own and occupy the house as your principal residence, so do not try this on a rental New York condominium home by pretending you live there when you do not. Many of these benefits came into being with the 1997 tax law but many folks are just finding out about them now, so buy and sell to your heart's content. Just do not plan to stay forever.
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