Tax Law and Benefits for Homeownership Fasen Hu Jing Yan Xin Li

Tax Law Rules, laws and policies They regulate the tax process Charges are implemented on income, estates, and other services by the government Tax laws can be applied directly or indirectly Entities are utilized in the development and enforcement of tax laws Tax laws are rules, laws and policies that are followed when accomplishing taxation. The government monitor the taxation and imposes charges on various services such as income and transactions. There are direct and indirect types of taxes. The mode of payment creates the difference. Direct taxes are paid directly while indirect taxes applied on articles of consumption. Entities such as schools, townships, and companies develop and apply tax laws.

Tax Law and Homeownership Benefits Tax law benefits home owners in diverse ways Homeownership is an effective hedge against inflation Income tax advantages Financial benefits Emotional satisfaction is achieved The tax law offers great advantages to the homeowners. A home is termed as a shelter and a residential place. Homes have gained value and homeowners gain a lot when they sell them. Income tax is the key benefit that is incurred. Other benefits include emotional satisfaction and financial gain. Homeownership is referred to as an effective hedge against inflation. Homeowners are able to sale their homes at high values at any time.

Mortgage Interest Deduction Interest is deducted on home mortgage A limit is set to guide the deduction Limited to specific home purchase and rehabilitation debt Home equity debt also considered The mortgage interest deduction only apply to homeowners Homeowners benefit from mortgage interest deductions. The deduction is not applicable to home purchase and rehabilitation debt of $1 million. Home equity debt of up to $100,000 can implement the mortgage interest deduction. The deductions only applied to people who own their home. As a result, non-home owners do not enjoy the mortgage interest deductions.

Property Tax Deduction Deductions based on the homeowners’ property tax Involves funds transfer to jurisdictions Property tax lowered for the individuals Homeowners gain a lot from the deductions Homeowners are able to minimize their taxable income when property tax is deducted. The property tax is the amount of money the individuals spend to pay on individual homes. The property tax deduction involves transferring federal finances to the tax enforcement jurisdiction who then lower the costs. Homeowners raise a lot of capital from the deductions.

Imputed Rent Gains on homeownership are not taxed Buying an home leads to rent-free state Exclusions are not effective on the rent acquired by landlords Homeowners are considered to be renters Federal revenue lowered by exclusion of imputed rent When a person buys a home, he or she enters into a rent-free state. The purchased home is subject to imputed rent which is not included in taxable income. Homeowners though they are both renters and landlords, the jurisdiction takes them as renters. Landlords are required to include the rent they acquire to the taxable income. The federal revenue has been negatively affected by the exclusion of imputed rent in the taxable income.

Capital from Home Sales Taxpayers required to pay tax on home sales’ profits Homeowners exclude home sales profits from the taxable income The limit of exclusion is $250, 000 for normal owners Joint filers limited up to $500,000 Homeowners must satisfy other requirements for application of the exclusion Selling of assets by taxpayers involves the payment of capital profit tax based on the sales made. However, the homeowner are not required to pay the capital gain tax when they sell their homes. Several requirements are must be met for the exclusion to be effective. The homeowners must have managed their homes for two years in the first five years as their main residence. Also, the homeowners should not have asked for the exclusions on other home for a period of two years. The exclusion is normally done up to $250,000. The joint filers qualify for exclusion up to $500, 000. The homeowners acquire more profit when they sale their homes since the gains are not exposed to taxation.

Energy Tax Credit Applicable to homeowners who implement energy-efficient advancements A credit of 10% is given on purchases of energy-efficient components Special energy-efficient property also entitled to extra special credits It helps lowers the amount of tax homeowners pay Homeowners who help in the promotion of energy-efficient advancements at their purchased or acquired homes enjoy tax credit. A 10% tax credit is applied on any energy-efficient advancement implemented. Purchases of certain energy-efficient items is entitled to extra special credit amount. The amount of tax homeowners pay is lowered on the application of the energy tax credit.

Tax deduction on Home Maintenance and Repairs Maintenance or repairs done on homes are not taxable Value may be influenced by repairs and maintenance The life of home is also prolonged by repairs and maintenance Improvements are on homes are taxable hence nondeductible Homeowners benefit when maintenance and repairs of their homes are not part of the taxable income. Maintenance and repairs are considered as strategies for enhancing the homes and increasing their lifetime. However, improvements are nondeductible because they said to remodel the homes. Extensive repairs may also be termed as improvements are included in the taxable income.

Deduction for First Time Buyer Down payment done by first time buyers sing their IRAs A 10% penalty applied for pre-age withdrawals by IRS IRAs funds can be utilized up to $10,000 for single homeowners and $20,000 for married people is utilized People who in past two years had not owned principle residence qualify for thee deduction Homeowners enjoy special offers for the first time they purchase their homes. Pre-age withdrawals are subjected to 10% penalty by thee IRS. A certain limit is given on the amount the homeowners can use based on their marital status. Married couples can use up to $20,000 of the IRAs funds to purchase their home. On the other hand, single people are required to use up to $10,000 of the IRAs funds. People who have never had a principle residence qualify for the deductions when they buy a home. The money withdrawn from the IRA are restricted for usage within 120 days.

Mortgage Insurance Treated as a home mortgage interests Insurance must be linked to home purchase debt Certain requirements must be met for the deduction to be effective The mortgage insurance need to be provided the legal bodies Mortgage insurance is considered as a mortgage interest and is excluded from the taxable income. Homeowners are therefore not required to include it in their taxable income. However, the mortgage insurance must be associated with a certain house purchase debt. Also, the insurance should have been issued by recognized bodies such as private mortgage insurance. Phasing out of the deduction is implemented when the gross income exceeds $100,000.

AmT Considerations Refers to alternative minimum tax Homeowners are deducted interest based on AMT Deductions made on home equity and mortgage debt The two debts must be associated with a certain home for application of AMT Alternative minimum tax can be subjected to homeowners and influence deductions on their debts. Home equity and mortgage debts linked with a specific home are entitled to the deductions under AMT. The implementation of the deductions on the debts is an tax advantage to the homeowners.

Home Office Deduction Part of the home may be used for business purpose Home costs associated with the section set for the business is excluded from taxation Percentage of deduction depends on costs incurred depreciation, repairs and insurance Homeowners benefit since the deductions are made on the taxable income Homeowners may decide to utilize section of their home for business purposes. Deductions are made based on the portion of the home set for the business. the percentage of deduction depends on expenses incurred on repairs, insurance, and depreciation.

Moving Costs Homeowners may move to other homes due to job requirement A percentage of moving costs is deducted in this case The IRS requirements must be met Travel costs, housing expenses, and household goods storage fees are deducted Moving costs deduction is a benefit of tax deduction to homeowners. Job requirement may force homeowners to move to new places of residence. As a result, provided the distance from the old home to the new location is greater than 50 miles, the moving costs deduction can be applied. Travel costs, housing expenses, and household goods storage fees are some of the expenses considered during the deducted.

Effects of the Tax Exclusions and Deductions Taxpayers who lie in the higher bracket benefit more Financial gains are realized by the homeowners Homeowners are able to pay other tax Facilitates acquisition of homes The tax exclusions and deductions are an advantage to the homeowners. However, much of the benefit is for the homeowners who lie in the higher bracket. Some of the benefits include saving finances that are acquired from the deductions. Also, the homeowners’ ability to meet other expenses in increased. People may also be motivated to purchase their own homes to benefit from the tax exclusions and deductions.

Conclusion Tax law is used to regulate taxation Tax law considers homeowners and subject them to diverse benefits The deductions and exclusions influence financial gains, comfort, and income tax advantages. The benefits depends on the level of the homeowner Other impacts include increase in number of home owners. The process of taxation is enforced and guided by tax laws. Homeowners enjoy many benefits from the deductions made according to the tax laws. The deductions and exclusions influence financial gains, comfort, and income tax advantages. The benefits depends on the level of the homeowner. Other impacts include increase in number of home owners.

References Carliner, M. S. (2012). Development of federal homeownership “policy”. Housing Policy Debate, 9(2), 299-321. Harris, B. H., Steuerle, C. E., & Eng, A. (2013). New Perspectives on Homeownership Tax Incentives. Tax Notes, 141(12), 1315-32. Rosen, H. S., & Rosen, K. T. (2015). Federal taxes and homeownership: Evidence from time series. The Journal of Political Economy, 59-75.