While there are many advantages to owning Columbia SC real estate, 
the tax benefits are some of the most important to consider. For decades, the Federal Government has incentivized homeownership through tax benefits that are not available to renters. These benefits not only help reduce the homeownership costs, but also the costs of buying and selling a home. In order for a homeowner to take full advantage of most benefits, you must itemize your taxes.
1) Mortgage Interest Deduction
The mortgage interest deduction (MID) is easily one of the best tax benefits available to homeowners. After searching, finding, and purchasing Columbia SC real estate for sale, a new homeowner is able to deduct all the interest paid on their mortgage payments. For the first few years of the loan, interest tends to be the largest component of the mortgage payment. Because of this, the MID is a very beneficial tax advantage to homeowners.
2) Property Tax Deduction
For income tax purposes, it’s possible to fully deduct the real estate property taxes paid on a first home. By taking advantage of these property tax deductions, a homeowner can effectively reduce their total tax burden. To learn more, check out Schedule A (Form 1040), line 6.
3) Capital Gains Exclusion
When considering Columbia SC real estate, it’s important for a buyer to develop a long-term plan that includes the capital gains exclusion. So long as a homeowner has lived in their home for two of the last five years, they can take advantage of the exclusion. Individuals can exclude up to $250,000, whereas couples can exclude up to $500,000. It’s possible to claim the exclusion once every 2 years.
Ultimately, there are a lot of tax advantages and benefits available to homeowners — the tricky part is finding them. For those who wish to learn more about these tax advantages and others, seek out a certified public accountant (CPA) or tax attorney to assess all the available options.
If you’re wanting to take advantage of the tax benefits of owning Columbia SC real estate in 2012, you’ll need to close on your home before December 31st. With the amount of time it’s taking many lenders to approve and close on a mortgage these days, the sand is seeping out of the hourglass for you to purchase and close in this calendar year.
Columbia SC mortgage tax deductions could be going away, all thanks to Congress’s new federal debt ceiling plan.
The compromise legislation created an unusual mechanism — an evenly split, 12-member bipartisan supercommittee — that could call for major cutbacks on real estate write-offs by Thanksgiving. All it will take is a single vote by a lone senator or House member who breaks with his or her party to put the mortgage interest deduction into serious play.
The legislation signed by the president Aug. 2 calls for a two-step increase in the federal debt ceiling plus spending cuts of about $917 billion. It also created the Joint Select Committee on Deficit Reduction to slash an additional $1.5 trillion from the deficit over the coming decade.
The committee is required to vote on a plan to achieve these objectives by Nov. 23, using revenue increases, spending cuts or a combination. If the committee members cannot agree on a plan, or if either chamber of Congress votes it down, automatic and severe spending cuts of $1.5 trillion will be imposed equally on the Department of Defense and domestic programs including Medicare provider payments.
After decades of being considered politically protected, why are Columbia SC mortgage write-offs suddenly on the chopping block? Sheer size is the No. 1 reason. The congressional Joint Committee on Taxation estimates that the home mortgage interest deduction will cost the federal government $100 billion during fiscal 2011 and $107.3 billion in 2012. Between 2008 and 2012, the cumulative write-offs for mortgage interest are projected to total just under half a trillion dollars.
Defenders of the write-offs argue that high levels of homeownership are essential to economic growth and social stability and fully justify the tax system preferences they receive. National opinion polls regularly find widespread support for the write-offs, even among renters.
Critics, on the other hand, consider the write-offs inherently unfair, saying they’re skewed to benefit upper-income owners disproportionately.
Where is all this headed? Columbia SC mortgage write-offs could be in greater political jeopardy in the next three months than they’ve been at any time in the past 25 years. Stay tuned to our blog and we’ll keep you updated on where all of this may shake out, and just how it may affect your Columbia SC mortgage write-offs.
Owners of most Columbia SC second homes will not be affected by the new 3.8 percent tax on some investment income that will take effect in January 2013. The new tax will hit those taxpayers with adjusted gross incomes over $200,000 a year ($250,000 for married couples filing jointly).
Adjusted gross income is the number at the bottom of the front page of Form 1040. It includes dividends, interest capital gains, wages and retirement income, plus results from partnerships and small businesses. It does not include itemized deductions such as mortgage interest and charitable gifts or personal exemptions.
The new tax was passed by Congress in 2010 with the intent of generating an estimated $210 billion to help fund President Obama’s health care and Medicare plans. It was recently upheld in a controversial ruling by the Supreme Court.
Columbia SC second homes that are not rented out and used only as a second residence have always been subject to capital gains tax on any gain. Also, gain is a net number. It is not simply the difference between the original purchase price and the eventual sales price. Homeowners can subtract real estate commissions, excise tax, and capital improvements before arriving at a net figure for capital gains purposes. If the home is not rented out and thus not an “investment property,” it is ineligible for a tax-deferred exchange.
A person’s primary residence still retains its favored status — even for those who have high incomes. The new “Medicare” tax still won’t apply to the first $250,000 on profits from the sale of a personal residence — or to the first $500,000 in the case of a married couple selling their home. The entire exemption on the sale of a primary residence remains intact and can be claimed every two years.
Unless you have significant income ($200,000, or $250,000 for married couples filing jointly), you, along with 97 percent of the U.S. population, will pay no additional tax on a Columbia SC second home in 2013.
Real Estate Surtax Won’t Affect Many Columbia SC Home Sellers
When the U.S. Supreme Court upheld the health-care law in June, it rekindled an issue that had been relatively quiet for the past year: A 3.8 percent “real estate tax” on Columbia SC home sales beginning in 2013 that is said to be buried away in the legislation.
With major portions of the law scheduled to take effect less than six months from now, questions are being raised again: Is there really a 3.8 percent transfer tax on real estate coming in 2013? Does it preempt the existing capital gains exclusions for Columbia SC home sellers, as some have claimed?
Yes, upper-income individuals face a new 3.8 percent surtax that takes effect Jan. 1 on certain investment income, including some of their real estate transactions. But it’s not a transfer tax and it’s not likely to affect the vast majority of homeowners who sell their primary residences next year.
How The Surtax Could Affect You Selling Your Columbia SC Home Next Year:
The National Association of Realtors’ tax staff provides this example of how the 3.8 percent levy might affect you next year:
Say you and your spouse have adjustable gross income (AGI) of $325,000 and you sell your home at a $525,000 profit. Assuming you qualify, $500,000 of that gain is wiped off the slate for tax purposes. The $25,000 additional gain qualifies as net investment income under the health-care law, giving you a revised AGI of $350,000. Since the law imposes the 3.8 percent surtax on the lesser of either the amount that your revised AGI exceeds the $250,000 threshold for joint filers ($100,000 in this case) or the amount of your taxable gain ($25,000), you end up owing a surtax of $950 ($25,000 times .038).
The 3.8 percent levy can be confusing, and it can bite deeper when your taxable capital gains are far larger or you sell a vacation home or a piece of rental real estate, where all the profits could subject you to the investment surtax.
If you’re wondering if this “hidden surtax” could affect you and your individual tax situation if selling your Columbia SC home next year, definitely talk to a tax professional for advice.
Tax advantages of owning a Columbia SC home are probably not the number one motivating force behind buying a home. But the tax advantages associated with owning your own home are significant, and may be a factor in your decision to buy a home.
Mortgage Interest Deduction
If you itemize deductions you’re generally able to deduct the interest you pay on debt resulting from a loan used to buy, build, or improve your principal residence, provided that the loan is secured by your Columbia SC home.
The ability to deduct mortgage interest also generally applies to second homes, though special rules apply if you rent the home out for part of the year. Interest you pay on up to $1 million in mortgage debt ($500,000 if you’re married and file a separate federal income tax return) can qualify for the deduction (different rules may apply if you incurred the debt prior to October 14, 1987).
Interest on qualifying home equity debt of up to $100,000 ($50,000 for married individuals filing separately) is generally deductible regardless of how the loan proceeds are used. If you’re subject to the alternative minimum tax (AMT), the AMT calculation doesn’t allow a deduction for interest on debt that’s not used to buy, build, or improve your Columbia SC home.
Qualified mortgage insurance premium payments made prior to 2012 can be deducted in the same manner as qualified mortgage interest, provided the mortgage insurance contract is issued after 2006. Congress is debating this tax deductible interest subject, and have been for several years. Each year, the possibility of this valuable deduction evaporating becomes more and more possible.
Could the mortgage interest deduction ultimately be eliminated? That seems unlikely, but elimination or reduction of the deduction has remained part of the ongoing debate, and was included among the recommendations contained in the National Commission on Fiscal Responsibility and Reform’s December 2010 report.
Deduction for Property Taxes
If you itemize deductions, in most cases, you can deduct the real estate taxes you pay on your Columbia SC home in the year you pay them to the taxing authority. If you pay your real estate taxes through an escrow account, you can only deduct the real estate taxes actually paid by your lender from the escrow account during the year. For purposes of calculating the AMT, however, no deduction for state and local taxes, including any real estate tax, is allowed.
Capital Gains on Your Columbia SC Home
If you sell your Columbia SC home at a gain, you may be able to exclude some or all of the gain from federal income tax. For the most part, capital gain (or loss) on the sale of your principal residence equals the sale price of the home less your adjusted basis in the property. Your adjusted basis is the cost of the property (i.e., what you paid for it), plus amounts paid for capital improvements, less any depreciation and casualty losses claimed for tax purposes.
If you meet all requirements, you can exclude from federal income tax up to $250,000 ($500,000 if you’re married and file a joint federal income tax return) of any capital gain that results from the sale of your Columbia SC home. This exclusion can be used only once every two years. To qualify for the exclusion, you must have owned and used the home as your principal residence for a total of two out of the five years before the sale. If you fail the two-out-of-five-year test, you might still be able to exclude part of your gain if your Columbia SC home sale is due to a change in place of employment, health reasons, or certain other unforeseen circumstances.
Special rules apply in a number of situations, including one in which you maintained a home office for tax purposes or otherwise used your home for business purposes. Special rules may also apply if you are a member of the uniformed services. Check with a tax professional about current laws that may affect the tax advantages of owning a Columbia SC home.
For more on current tax laws, visit the IRS website.