The Only Advantage to Renting Versus Buying a House
Buying a House — What You Should Know About Government Tax Incentives
You’re intelligent enough to know that buying a house should be partnered with a well thought out financial plan.
Just think about it. Supporters of owning a home are a passionate crowd. The reasons for their enthusiasm are credible. Let’s discuss one right now, buying a house as a tax shelter.
Your home is probably the biggest purchase you will ever make and the largest tax shelter you will probably ever enjoy.
The more you review this page, the more you begin to find yourself appreciating one of the most significant benefits of owning a home, taking advantage of the tax free sale. You may be eligible to exclude up to a quarter-million dollar gain from any tax liability.
If you file a joint return you may be eligible to exclude double that, up to half-a-million dollars.
Imagine what it would be like if the money from the sale wouldn’t have to be designated by the government for any purpose. Well, it doesn’t. It is yours to keep and use at your discretion.
Any portion of the proceeds may by rolled over into your next home. Or you might decide upon investing it in the stock market. A plus for Seniors of retirement age, the tax free money can supplement income. You can pass the money on to your heirs. It is tax free income. It goes without saying that the government will charge inheritance tax.
You’re probably wondering about eligibility requirements. There are two tests to meet in order to exclude the gain from the sale of your home. Reference: Department of the Treasury, Internal Revenue Service, Publication 523, Selling Your Home, 2007, page 10
Basically, during the 5 year period prior to the sale of your home, you must meet the ownership test and the use test. The ownership test requires that you have owned your home for at least two years. The use test requires that you must have lived in the home as your primary residence for a minimum of two years.
In addition, the two year ownership test and the two year use test that end on the date you sell your house do not have to be continuous. If you can show that you owned and lived in the house and used it as your primary residence for a full 24 months over the last 5 years, congratulations, you meet both tests.
The IRS uses this example. Suppose you bought and moved into a house in July 2003. You then lived there for 13 months but moved in with a friend because of personal circumstances. In 2006 you moved back into your house living there for another twelve months before selling in July 2007. You would meet both the ownership and use test because you owned the house four years while living in it for a total of 25 months during the 5-year period that ended when you sold the house.
Accordingly, the IRS also says that temporary absences are allowed for vacations and other seasonal absences even if you rent out the house. They can still be counted as periods of use.
For the purpose of this article I am not going to explain every detail concerning excluding the gain from the sale of your home.
The important point is this. Everyone can enjoy tax free income up to $250,000 as an individual and up to $500,000 as a married couple from the sale of a home. The government has provided this powerful tax incentive to home ownership and buying a house should be a part of everyone’s personal financial plan.
For more detailed information you should consult a qualified tax professional, accountant, or tax attorney.
Buy a House – 5 Steps to Get You Started
Are you ready to buy a house? This article focuses on prioritizing your housing needs before you begin shopping for a home.
There are a lot of reasons to buy a home. A home is an asset that over time increases in value. There are always periods when home values diminish but over the long term, there is no single better investment.
A home is also a place to raise your family and adds stability because it encourages families to plan for the future.
Owning a home is a way of investing in your community. It helps improve neighborhoods and provides local economic strength.
Because homeownership is such a positive influence on families and communities, the federal government is active in creating programs through FHA and using tax incentives to encourage buying a home.
Often the most difficult part of buying a home is knowing where to begin, especially for first time home buyers.
Now it is time to focus on deciding your housing needs before you begin your search.
It is far more efficient to determine your personal requirements before you begin your search for a home. Start by thinking about the way you live. Are you a single person? Are you married? Do you have children? Perhaps you have a parent or grandparent living with you. For those whose commute never leaves the front door, a home office is not a luxury. Pet owners have additional considerations such as feeding and bedding areas. Sit down and write out what you think you need regarding space in a home.
Now comes the fun part, listing options. Relax and imagine what you truly want. Jot down whatever comes to mind first, such as a gourmet kitchen, hardwood flooring or a large foyer.
After listing what you need and adding additional features that you would like but are not essential, start to consider your priorities.
Priorities may include lot size and location. Do you want a big yard that may require more upkeep or a smaller yard with less maintenance? Do you like corner lots in a neighborhood or would you prefer to be located in the middle of the block or end of a cul-de-sac? Keep track of ideas regarding lot dimensions and location.
Square footage is a giant consideration. How many bedrooms are important? Is a laundry room better than placing your washer and dryer in the garage? More than one bathroom is convenient? What do you want in a kitchen? Contemplate the number of rooms, the square footage and optional features. Write them down.
Other priorities will include the building style. It is a good feeling to enjoy coming home to a house that is pleasing. You will be drawn to one or two types of homes. Remember to bring along your camera for houses that catch your eye.
Since a neighborhood becomes your local community, pay attention to the surroundings. For households with school age dependents, proximity to schools should be considered. Will your kids be able to walk to school or are they located too far away?
You may also want to think about where you want your home to be in proximity to your job and public transportation. Do you need to be close to the subway or train station? Is the bus how you get to work? Will the location of a certain house increase your commute?
Regarding all these items, establish your minimum requirements. Then build a wish list too. Both checklists are important.
And remember what I say. It is your house and your mortgage. No one is going to care about it more than you.
Above all, decide you are going to have fun while buying a home.