Your Home As A Tax Shelter

Posted: 05 Feb 2008 | Categories: Taxes

When purchasing a home you are creating a fantastic tax shelter for yourself. But for the most part, you will find very little in the way of tax write offs during the process of purchasing. If you live in the District of Columbia, and are a first time home buyer, you may be eligible for a one time only tax credit.

The credit is up to $5,000, or $2,500 for those who are married but file separate returns. The definition of a first time home buyer is an individual who has not had a present ownership interest in a residence (principal only), in the District of Columbia for the one year period that ends on the date of purchase.

For those with modified adjusted gross income (MAGI) over $70,000 if single, or $110,000 on a joint return, the credit is phased out. No credit may be claimed for single filers with MAGI over $90,000, or married couples filing jointly with MAGI over $130,000. You would use form 8396 for this credit and the amount of interest deductible as an itemized deduction must be reduced by the amount of any credit. Also, the credit applies only to property purchased before January 1, 2004, unless Congress extends the credit.

Those who are low-income taxpayers may qualify for a mortgage interest credit, regardless of where they live. This credit is claimed annually by taxpayers who continue to qualify for it.

A qualified homeowner must receive a mortgage credit (MCC) certificate from the state or local government showing the credit rate used to figure the credit. The certificate will also list the certified indebtedness amount on which the credit is figured.

The next important topic is some of the some tax breaks that can assist in financing the purchase of a home. The 10% early distribution penalty for IRAs is one of the tax breaks you get. This penalty is waived for withdrawals up to $10,000 in a lifetime that are used for first-time home buying expenses.

In this case, a first-time home buyer is a qualified person-if the taxpayer (and if married, the taxpayer’s spouse) had no present ownership interest in a principal residence during the two-year period ending on the date of purchase.

The funds you withdraw must be used for qualified acquisition costs no later than 120 days after withdrawal. Qualified acquisition costs include the costs of acquiring, constructing or reconstructing a residence. These include usual or reasonable settlement, financing or closing costs.

This article has briefly covered how to withdraw money from a retirement account and save the potential penalties as well as when a mortgage credit could be received. There are many other advantages to home ownership which you should be aware of. You should take the time to research this subject completely and educate yourself on all the advantages. By doing so, you will truly make your home a fantastic tax shelter.

The articles I write on US Income Taxes are accurate and drawn from my twenty years experience as a professional income tax preparer, many as an owner of a successful firm. I have found that many people do not understand the tax code and I am here to help.
http://www.jjackson328.com

Article Author :Steven_B_Jackson