Thursday, July 25, 2013

What You Might Lose with Tax Reform

With the "blank slate" effort to re-write the tax code, certain deductions that the "average" tax payer use regularly are possible casualties.

Without knowing the details of the plan until it becomes public, it is hard to know if the new simple rates structure under discussion would equalize the lost of these deductions for the average person.

Only time will tell.    


Topic Summary: What Homeowners May Be Faced With Loosing or Having Reduced 

Since 1913, Homeowners have been given preferential treatment. For 100 years, interest on the mortgage has been a favored tax break. It is also one of the costliest tax breaks. It is under fire to be eliminated over time or at least reduced in value.

Here is a quick list of some popular tax breaks we homeowners enjoy.

1. Mortgage Interest

Interest that you pay on your mortgage is tax deductible, within certain limits. Married taxpayers can deduct all your interest payments on up to  $1 million in mortgage debt secured by a first or second home. The average homeowner using this deduction reduces their taxable income by about $12,000. Americans save around $80 million every year by deducting mortgage interest on their tax returns.

2. Capital Gains Exclusion

Married taxpayers who file jointly now get to keep, tax free, up to $500,000 in profit on the sale of a home used as a principal residence for two of the prior five years.

3. Home Equity Loan Interest.
  If you borrow money against your home you can deduct the interest paid (within certain limits)

4. Property Taxes. Homeowners at certain levels of income can deduct from their taxable income, local property taxes paid on their home.

5. Energy Efficiency Upgrades/Repairs Deduction
Homeowners can deduct the cost of the building materials used for energy efficiency upgrades to their home. This is actually a tax credit, one which is applied as a direct reduction of how much tax you owe, not just a reduction in your taxable income.

6. Loan Forgiveness Deduction: For homeowners who had a mortgage work out or short sale, Congress added in some breaks in 2007. Up to that point the money you saved form the work-out was considered income and taxable. The Debt Forgiveness Act temporarily relieved the taxpayer of that burden. The provision is still active.

Source: Al Clark's Home Action 
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