Always consult an expert on taxes before you make financial decisions
Some Newer Tax Benefits
A new law allows married taxpayers filing a joint return to exclude up to $500,000 of gain on the sale of their principle residence. Single taxpayers can exclude up to $250,000 of gain. To qualify for the exclusion, homeowners must have lived in and used the home as their primary residence for two out of the preceding five years. Homeowners are allowed to take the exclusion once every two years. Plus, homeowners may take the exclusion as many times as they like, there is no cap on how much total gain they may exclude in their lifetimes.
Homeowners going to a less expensive real estate market will now be able to purchase a less expensive home without worrying about the rollover rules, exclude the gain, and take the cash and do whatever they want with it. Homeowners wishing to ‘downsize’ will be able to sell their current home, take their equity, claim the exclusion, buy a condominium or smaller home and use the leftover proceeds for a retirement investment. Homeowners who want less expensive housing, or want to rent, will be able to scale down without fear of a big capital gains tax bite. They can stop worrying whether a prospective spouse has already taken their exclusion – the new law allows new exclusions even if the old exclusions was used.
There are other changes that could significantly affect ‘do-it-yourself’ fixer-uppers and owners of second homes or rental properties.
Your Move May Be Tax Deductible
After making the big decision to move, most people feel that combination of stress and excitement. Excited to create a new home and even new friends, yet anxious about the preparation it takes to make the move.
Preparing for the move is a hectic time – all the packing and tying up of loose ends. Then, the actual, physical move to a new home, especially if it’s in a new city, presents the next set of time-consuming tasks, as well as more expenses.
There’s a possibility though, if your employer isn’t covering or reimbursing you for moving expenses, that you can deduct what you spend on your move on your income tax return. In other words, you can take the expenses as an adjustment to your income, and therefore reduce your tax liability. (You can deduct qualified moving expenses even if you don’t itemize deductions.)
Am I Eligible?
The main requirement for eligibility for the moving expenses deduction is whether or not your move is related to a new job location. If it is, then you’ve cleared the first requirement. Generally, you can deduct moving expenses incurred within one year from the date you first reported to the new job.
If you’re just out of college and this is your first job, then your moving expenses aren’t deductible, unless you worked in college and meet the rest of the requirements as well.
Was Your Move Far Enough?
Moving to a “new job location” doesn’t necessarily mean you have to move across the country to get the deduction, but there is a distance requirement: Your new job location must be at least 50 miles farther from your former home than your old main job location was from your former home. In other words, if your old job was 10 miles from your old home, then your new job location must be at least 60 miles from that former home.
If you’re self-employed and your work is home-based, you are not eligible to deduct moving expenses because when you move into a new home, you really haven’t changed work locations. But if your spouse can show that the move was related to his or her new job, then qualified moving expenses of the entire family are deductible as an adjustment from gross income.
The Time Test
The third requirement for eligibility for the moving expense deduction is what the IRS calls the “time test.”
Basically, you have to work full-time at the new job location at least 3 weeks in the first 12 months following the move. (This requirement changes a bit if you’re self-employed. You may want to contact your tax professional for details.)
There are exceptions to the requirements. On the time condition, for instance, the IRS says it will consider circumstances that prevented your move from happening within the 1 year period. An example cited was if your family moved 18 months after you started your new job location so that your teenager could complete high school.
Generally speaking, expenses to move you and your belongings, as well as your family and all the household’s belongings, qualify for the deduction. Here’s more on what’s considered deductible in your move, if you’re relocating within the U.S.: Your moving expenses have to be “reasonable,” the IRS says. The cost of traveling from your former home to your new one should be the “shortest, most direct route available by conventional transportation.” So, for example, if you decide to stop over somewhere or make side trips for sightseeing, don’t expect the additional expenses to be eligible for deductions.
If you’re driving your car to take yourself, your belongings or your family, you can either deduct “actual expenses,” such as gas and oil, or use the standard 12 cents a mile deduction. Either way, you can still deduct parking fees and tolls you pay in moving, but not general repairs, general maintenance, insurance or depreciation for your car.
You can deduct the cost of packing, crating, and transporting you and your family’s household goods and personal effects. You cannot deduct the cost of moving any furniture or other household goods you buy along the way to your new home.
You can deduct any costs of connecting or disconnecting utilities required because you are moving.
You can deduct the cost of shipping your car and your household pets.
You can deduct the cost of storing and insuring household goods and personal effects within any period of 30 consecutive days after the day your things are moved from your former home.
You can deduct the cost of transportation and lodging for yourself and members of your household while traveling from your former home to the new one.
Related Tax Deductions
If you took out a new loan to buy your home, you’ll be able to deduct points (and interest) on your new loan, any remaining points left on the old home, and the real estate taxes paid on both homes. (“Points” includes loan placement fees, and are also called loan origination fees, maximum loan charges, loan discount or discount points.)
Real estate taxes are usually divided so that the seller and buyer each pay taxes for the part of the property tax year that each owned the home.
Self-directed IRA Real Estate Investing
Did you know that IRAs and Qualified retirement plans can be self-directed into the investments you choose? If you are interested in investing in real estate, the IRA can finance your property with a non-recourse loan. The IRA also makes the down payment. Self-directed IRA’s require that your account be administered by a company such as Entrust New Direction IRA. Entrust can answer your self-directed questions and will help you maintain compliance within IRS rules regarding your real estate investment.
This information is deemed reliable and can be found through H&R Block