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Yes, there are tax advantages for owning a home.
The following is information from the National Home Builders Association.
Buying a new home is one of
the smartest purchases you can ever make. One of the reasons is that
homeownership has many positive tax implications. Because of changes to the tax
code passed in 1997, these tax implications are much more favorable for most
homeowners today than in the past.
According to the law,
married homeowners do not have to pay taxes on up to $500,000 in capital gains
realized on the sale of their homes. The $500,000 provision applies to married
homeowners filing joint returns and is restricted to homes sold on or after May
7, 1997. To qualify, the home would have to have been used as a principal
residence for at least two of the previous five years. Taxpayers who file
individual returns may claim up to $250,000.
According to the previous
rules, the tax on any profit would be deferred if the sellers of the home
bought and occupied another home of equal or greater purchase price within 24
months before or 24 months after the sale of the old residence.
The previous law also
allowed for a one-time capital gains exclusion. Home sellers who were at least
55 years old could realize a tax-free gain of up to $125,000 if the home had
been used as a principal residence for at least three of the previous five
years.
Under the old law, home
sellers could use their capital gains exclusion only once after turning 50.
Under the new law, people over 55 who already have used their exclusion can
take advantage of the new tax provisions, assuming that they have occupied
their new residence for at least two of the previous five years.
First time homebuyers also
benefited from a special provision of the new tax law. One of the largest
obstacles to homeownership usually is the inability of potential first-time
homebuyers to save enough money for the down payment. In 1997, Congress passed
a new provision allowing first-time homebuyers to withdraw up to $10,000 from
their IRA accounts if the money is used for a down payment on a home. The
penalty-free provision can be applied to IRAs owned by the homebuyers, their
parents, or their grandparents. Under current law, early withdrawals from an
IRA incur a 10 percent penalty.
THE HOME BUILDERS ASSOCIATION SERVING PORTAGE & SUMMIT COUNTIES
Copyright 2003
Homebuilders Association
serving Portage & Summit Counties
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