Demographics changes, relocating and the recession have led to the buying and selling of many homes across the United States. Selling your home can be difficult, but many people pass up their opportunity to use what they make on the house in the best way possible.
“They think the market still has upside so they rent out their house for a few years, but if you haven’t used your principal residence for at least two of the five years prior to the sale, you lose the exclusion,” said Suzanne Shier, director of tax strategy at Northern Trust. “You need to be aware of the rules and be aware of the exceptions to the rules so you don’t inadvertently lose benefits,” she said.
Here are a few ways you can fully benefit from owning a home.
Put your house in trust
People generally put their homes in a trust when they are planning their will or have some sort of disability. However, there are some tax consequences that could cause you to lose your exemptions for owning a home. As far as this goes, “You need to be mindful of the local rules,” Shier said.
By making a few energy-efficient improvements to your home, you can get a tax credit of up to $500 (10 percent of the costs). You can get this tax break by doing things like putting in new energy-efficient windows or adding new insulation. There are also some tax breaks for going solar, wind or geothermal.
Out-of-state vacation homes
If you are lucky enough to have a vacation house, you may want to be knowledgeable about the tax laws in the state/city where you vacation. A non-resident of a state does not get the full tax exemption that a resident home owner may have. When people are relocating, they often keep a home in their original state. However, because you move to a non-estate tax state doesn’t mean you won’t have to pay taxes on your old property.
If you are remodeling or making changes to your home, keep every receipt. If you file the receipts for things like a new roof, a sprinkler system, new kitchen applicances can all add to your adjusted cost basis. In the long run, this can help you save even more capital gains taxes by saving your receipts.
Give your house away
If you don’t have anyone to necessarily inherit the house, it may be a good idea to give your house to charity. There are quite a few ways to do this. For example, if you and your husband or wife want to spend he end of your days at the residence, you can give away the house when you both pass away. You can do this through a life estate, and you get a tax deduction upfront.
These tips may save you (or make you) thousands of dollars come tax return time. They are easy, but not widely used, homeowners should be taking advantage of each of these tricks.