Property Ownership and Income Taxes

Property Ownership and Income Taxes

Have you been confused with owning property and how taxes pertain to owning that property?

The property ownership life cycle consists of three primary stages:

  1. Acquiring the property
  2. Owning the property
  3. Reverting/selling the property

Each life cycle stage has associated income tax-related items that affect those who own primary and secondary residences. 

Income Taxes and the Homeowner

Acquisition

  • Points deduction 
  • Penalty-free early IRA distribution option for first-time home buyers 
  • Taxpayer Relief Act of 1997

Note: Closing costs are not deductible. 

Ownership

  • Property taxes deduction 
  • Mortgage interest deduction
    • Home acquisition financing 
    • Re financed loans
    • Home equity loans 
  • Itemized deductions and depreciation (home-based work or business) 

Reversion (Sale)

  • Tax breaks ($250,000/$500,000 Rule) 
  • Capital gains or losses

Homeowners may also be able to take advantage of a one-time deduction for moving expenses if they have to move for work-related reasons.

Leasing of secondary homes—If fewer than 15 days, no tax reporting required

Income Taxes and the Investor

Acquisition

  • Deductions for points
  • Tax credits
  • Depreciation of closing costs

Ownership

  • Mortgage interest deductions 
  • Property tax deductions
  • Write-offs of expenses
  • Depreciation of closing costs

Reversion (Sale)

  • 1031 Tax Exchange
  • Depreciable basis
  • Net loss/income
  • 3.8% investment income tax

Download The Top 24 Tax Deductions Checklist For Investors!

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