The United States government has quite a few proposals on the table to stimulate the housing market.
At this time, some possible proposals are lower mortgage interest rates and tax credits up to $15,000 for homebuyers.
The outcome of Congress’ wrangling should be known in just days or a few weeks.
What should be clear now to the American public are the direct and ancillary effects that home ownership has on the U.S. economy — directly with those employed by builders and developers and indirectly with local sales tax revenue and those businesses such as home centers, furniture stores, appliance stores who indirectly benefit from home building and home ownership.
The government, for as long as one can remember, has offered economic stimulus to the homebuyer in various forms with revisions throughout the years.
Below are some current government tax-saving incentives.
Mortgage interest payments are deductible for income tax purposes. In addition, property taxes are also deductible.
When purchasing a home, if the buyer pays points to buy down the mortgage interest rates, the points are fully deductible in that tax year.
It is important to note that if you refinance your mortgage and pay points, the points must be amortized over the life of loan.
An example of the approximate income tax savings would be as follows: let’s assume you are in the 25 percent income tax bracket. The home you are purchasing has property taxes of $2,000 a year, and the mortgage amount is $200,000 at a 6 percent interest rate amortized over 30 years.
Therefore, in the first year of the mortgage you would pay $11,900 in interest, and $2,000 in property taxes.
This would give a taxpayer a federal tax deduction of $13,900. Based on the 25 percent tax bracket, this may equate to an income tax savings of $3,475.
Another tax savings being offered is on the profit of a primary residence when you sell the home.
Under current law, if you are single and have lived in your home long enough, the first $250,000 of profit may be excluded from income tax.
For married couples, the first $500,000 of profit may be excluded.
Why this may not seem important in today’s market, one may anticipate if they purchase a home at today’s deflated prices, they may see a profit if inflation raises home prices in the future.
Ray Pugel is a designated broker for Coldwell Banker Bishop Realty.