If you’re selling your Columbia SC home after you’ve made substantial improvements, known as capital improvements, the money you spent on those improvements could help lower your tax bill when you sell.
Tax rules let you add capital improvement expenses to the cost basis of your Columbia SC home. Why is that a big deal? Because a higher cost basis lowers the total profit, or capital gain, in IRS-speak—you’re required to pay taxes on.
The tax break doesn’t affect everyone. Most home owners are exempted from paying taxes on the first $250,000 of profit for single filers ($500,000 for joint filers). If you move frequently, maybe it’s not worth the effort to keep up with your capital improvement expenses. But if you plan to live in your house a long time or make lots of upgrades, saving receipts is a smart move.
How Improvements Can Affect Your Columbia SC Home Cost Basis
To figure out how improvements affect your tax bill, you first have to know your cost basis. The cost basis is the amount of money you spent to buy or build your Columbia SC home including all the costs you paid at the closing: fees to lawyers, survey charges, transfer taxes, and home inspection, to name just a few. You should be able to find all those costs on the settlement statement you received at your closing, also known as your HUD-1 Statement.
Next, you need to account for any subsequent capital improvements you made to your Columbia SC home. Let’s say you bought your home for $300,000 including all closing costs. That’s the initial cost basis. You then spent $25,000 to remodel your kitchen. Add those together and you get an adjusted cost basis of $325,000.
If you lived in your home as your main residence for at least two out of the last five years, any profit you make on the sale will be taxed as a long-term capital gain. You sell your Columbia SC home for $575,000. That means you have a capital gain of $250,000 (the $575,000 sale price minus the $325,000 cost basis). You’re single, so you get an automatic exemption for the $250,000 profit. End of story.
Had you not factored in the money you spent on the kitchen remodel, you’d be facing a tax bill for that $25,000 gain that exceeded the automatic exemption. By keeping receipts and adjusting your basis, you saved about $5,000 in taxes based on the 15% tax rate on capital gains. Well worth taking an hour a month to organize your home-improvement receipts, wouldn’t you say?
This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.
With tax season upon us again, many people are wondering when they might expect to receive their tax refund.
Some people believe that getting a large tax refund is not as desirable as more accurate withholding throughout the year, as a large refund represents a loan paid back by the government interest-free. Optimally, a return should result in a payment owed of just less than would cause a penalty charge, which is 100% of the prior year’s tax (110% for high income individuals), 90% of the current year’s tax, or $1,000 for individuals who have direct withholding and do not pay estimated tax.
However, some people use the tax refund as a simple “savings plan” to get money back each year (even though it is excess money that they paid earlier in the year). Another argument is that it is better to get a tax refund rather than to owe money, because in the latter case one might find oneself without sufficient money in their checking account to make the necessary payment. When properly filled out, the Form W-4 will withhold approximately the correct amount of tax to eliminate a refund or amount owed, assuming the W-4 was filled out at the beginning of the tax year.
If you’re one of the lucky ones expecting to get a tax refund this year, here’s some news about when you can expect to get that tax refund after you file your taxes…
For more information on tax refunds and other tax related information, just click over to the Taxes Category under Columbia SC Real Estate Categories to the right.
The housing market and the housing industry have escaped the ax on several fronts now that lawmakers have at least partially resolved Washington’s “fiscal cliff” budget fiasco.
A bill passed by Congress to pull the nation back from the brink of end-of-year tax hikes and spending cuts contains several provisions that are favorable to housing.
The housing industry dodged a bullet on a big issue—potential limits on itemized deductions, including the cherished mortgage interest deduction. Last year, there was talk among politicians in both parties of capping those deductions at a particular level, and Republican presidential candidate Mitt Romney suggested several options, ranging from $17,000 to $50,000. But those limits did not come to pass as part of the fiscal cliff deal.
The pact does restore some limits on deductions that had been in place in the 1990s. But they apply only for individuals earning above $250,000 per year and couples earning above $300,000.
These limits reduce how much high-income taxpayers can claim for mortgage interest and other deductions. For example, a couple with a combined income of $350,000 would see their total itemized deductions fall by $1,500. That results from a formula that reduces the amount that can be deducted by 3% of the difference between the taxpayer’s income and the deduction cap. (In this case, $1,500 is 3% of the $50,000 difference between $300,000 and $350,000.)
“This is a meaningful win for the housing lobby generally and, more specifically, the mortgage insurance industry,” according to Issac Boltansky, a Washington analyst with Compass Point Research and Trading.
However, analysts still believe the mortgage interest deduction could be altered as Congress continues to look for ways to save money. Mr. Boltansky says, “While the mortgage interest deduction avoided a direct hit this time around, we doubt it will dodge Congressional scrutiny going forward.”
As always, we will keep you up to date on any further mortgage interest deduction talks that may come out of Washington in future discussions.
Limiting real estate tax deductions could definitely affect Columbia SC home values, and it’s an issue you’re likely to hear more about as Congress and the Obama administration continue negotiations on the comprehensive tax reform that could send the economy over the “fiscal cliff.”
What Could Happen to Columbia SC Home Values?
Any significant reductions in these long-established tax benefits would inevitably trigger declines in Columbia SC home values. Under some circumstances, they could be well into the double digits — 15%, according to Lawrence Yun, chief economist of the National Association of Realtors. “That’s how much we can expect values to fall as buyers discount the value of the deduction in their purchase offers,” according to Yun.
Cutting back on real estate write-offs could make homes less attractive financially, but other potential features of a final tax compromise could counteract the loss of deductions, softening the net impact on values. Plus no one on Capitol Hill is talking at the moment about eliminating the mortgage interest or property tax write-offs, just capping them in some way for higher-income individuals.
But would limiting real estate deductions necessarily lead to lower Columbia SC home values? A 1995 study by the consulting firm Data Resources Inc. estimated that a consumption-based “flat tax” that repealed all deductions would lead to a 15% aggregate decline in home values, costing owners $1.7 trillion in equity holdings.
More recently, a 2010 study for the Tax Policy Center of the Brookings Institution and the Urban Institute sought to model the effects of Obama’s tax reform proposals for fiscal 2011 — limiting mortgage interest and property tax deductions to the 28% bracket level, and the simultaneous increase in the highest-income tax brackets back to the levels existing before 2001.
In one scenario, when taxpayers in the 33% bracket had their mortgage interest deductions limited to 28%, with no other tax changes, housing values dropped 6.9% to 15%, according to the study. The restrictions would have the heaviest effects on houses in areas of the country with relatively high local tax rates and where the costs of renting a home or apartment are favorable when compared with the costs of purchasing.
The reference to “certain assumptions” is key here. Nobody knows what shape tax reform — if it occurs in 2013 — will take: How drastically Columbia SC home values could be pared back, how long a transition period would be provided and what other elements in the final deal might serve to cushion the effect on homes, such as by spurring more vigorous economic growth, lower federal deficits and debt.
But for a segment of the economy such as Columbia SC home values, where asset values are tied in part to long-standing tax subsidies, almost any change that reduces those benefits appears likely to have at least a mildly negative effect on pricing. That is what is now in play on Capitol Hill.
Stay tuned to our site. We’ll keep you up to date on Columbia SC home values, and how they may be affected by any tax reform that Congress may enact.
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.