Monthly Archives: January 2014

Getting to Know the Capital Gains Tax Exemption

Capital Gains

Meet Bill and Mary. A married couple, they sold their primary residence last year and made a profit. The profit they made on their home sale is subject to a federal capital gains tax.

However, the profits Bill and Mary earned on the sale of their home are not taxed because they qualified for an exemption.

Simply put, the capital gains tax is the tax you pay on the profit from selling your home. Here are some other facts about capital gains taxes:

  • With the home-sale exemption you can exclude up to $500,000 of any profits from your capital gains taxes as a married couple.
  • You can add capital improvements (money spent on improving the value of your home) to the cost basis of your home. This in turn, lowers the total profit you pay taxes on.
  • In order to take the home-sale exemption from your capital gains taxes the property you’re selling must be your principal residence.
  • There is no limit to the number of times you take the home-sale exemption from your capital gains taxes.
  • These are only a few things to know about the capital gains tax and selling your home.

Be sure to get all the details about how capital gains affects you here.

Do You Know About the Mortgage Interest Deduction?

House

The home mortgage interest deduction is vital to the housing market. The MID saves the average home owner thousands of dollars every year. It also makes the dream of home ownership a reality for America’s middle class.

How does the MID work?

In general, any home owners who pay U.S. taxes and who itemize their taxes can deduct mortgage interest attributable to primary residence and second-home debt totaling $1 million, and interest paid on home equity debt of as much as $100,000.

Why is the MID good policy?

More than 60% of the families who claim the mortgage interest deduction have household incomes between $60,000 and $200,000. The MID enables the dream of home ownership in millions of middle-income families while also guaranteeing that buying a home will be a good investment well into the future. With increasing home ownership, home prices are more stable for those who already own homes, ensuring a steady stream of new buyers and making home buying a smart, safe investment.

We at the NATIONAL ASSOCIATION OF REALTORS® are working hard to make home ownership more affordable for more Americans every day. Sign up today and receive more information on the MID and other benefits of home ownership straight to your inbox.

How the Mortgage Interest Deduction is Vital to the Housing Market

Homes on a street

The home mortgage interest deduction saves the average home owner thousands of dollars at tax time, supports home values at the community level, and helps American home buyers get into their first house.

Having a tax deduction for mortgage interest makes owning a home more affordable because the deduction lowers the amount of tax you pay. U.S. Census data shows 37% of home owners with mortgages spend more than 30% of their income for housing. Paying less for housing means having more disposable income for savings and other household expenses.

Increasing housing affordability increases the number of renters who can afford to buy a home of their own responsibly; increasing the number of home buyers helps keep home prices stable for those who already own homes by ensuring a steady stream of new buyers.

How the deduction works

In general, any home owners who pay U.S. taxes and who itemize their taxes can deduct mortgage interest attributable to primary residence and second-home debt totaling $1 million, and interest paid on home equity debt of as much as $100,000.

Mortgage interest deduction threatened

In recent years, the mortgage interest deduction has come under attack. Among the suggestions for cutting it back to deal with the deficit:

  • Reduce the mortgage interest deduction for upper-income taxpayers—they’d only receive 28 cents on the dollar, even if they’re in a 33% or 35% tax bracket and can now deduct 33 or 35 cents on the dollar.
  • Reduce the $1 million cap by $100,000 a year.
  • Change the mortgage interest deduction to a 15% tax credit.

In the past, members of Congress have suggested other mechanisms for eliminating or limiting the mortgage interest deduction. None of those has ever gained traction.

Arguments against mortgage interest deduction

Arguments against the mortgage interest deduction center on who benefits and whether the government should support home ownership. They say:

  • It primarily helps the wealthy, since high-income taxpayers are more likely to itemize their deductions and to own homes. About 90% of taxpayers earning more than $100,000 itemize, while only 18% of those earning less than $50,000 follow suit, the Tax Foundation estimates.
  • Taxpayers who don’t itemize deductions get to use the “standard deduction.” They do that because it gives them a bigger tax break than itemizing to use the mortgage interest deduction.
  • Ending or reducing the mortgage interest deduction would create a deep source of money for reducing the budget deficit.
  • In the aftermath of the mortgage crisis, the U.S. needs to rethink its favored tax treatment of home ownership.

Arguments for mortgage interest deduction

  • Those who favor keeping the mortgage interest deduction say it helps middle-income families, who already pay nearly all U.S. income taxes. Plus, getting rid of the mortgage interest deduction would hurt home prices.
  • More than 60% of the families who claim the mortgage interest deduction have household incomes between $60,000 and $200,000, estimates the NATIONAL ASSOCIATION OF REALTORS®.
  • Home owners already pay 80% to 90% of the income tax in our country, and among those who claim the mortgage interest deduction, almost two-thirds are middle-income earners, says NAR Chief Economist Lawrence Yun. So home owners, who are the pillars of federal income tax revenue, would have to shoulder a bigger tax burden.
  • It’s faulty to link the mortgage meltdown to the country’s support for home ownership. The meltdown is rooted in lax underwriting and faulty ratings by credit rating agencies of the securities backed by the mortgage, says Yun.

Protecting the deduction promotes housing. In supporting the mortgage interest deduction, you help ensure that tomorrow’s families can follow the same path to home ownership that so many of us have already traveled.

Student Debt & Your Wallet

Fast Fact: Student debt is now growing at a rate of $3,000 per second. If we do not slow this rate down, our home values and our wallets could take some tough hits.

STUDENT DEBT IS NOW GROWING AT A RATE OF $3,000 PER SECOND. IF WE DO NOT SLOW THIS RATE DOWN, OUR HOME VALUES AND OUR WALLETS COULD TAKE SOME TOUGH HITS.

Think student debt is someone else’s problem? If you’re a homeowner, you’d be wrong. Here’s why:

FACT: Student debt exceeds credit card and car loans and continues to grow at the rate of $3,000 per second.

The more than $1.1 trillion in student debt is holding our next generation hostage, pushing the American Dream further out of reach for millions.

High student debt prevents many young graduates from qualifying for their first home mortgage, which means many current homeowners will have trouble selling – potentially impacting your own home’s value.

America’s college graduates have historically been more likely than non-college graduates to become homeowners.

But today a whopping 95% of students borrow for college and almost 15% of them default within a few years. Those who don’t default often struggle to make payments. As a result, this historical homeownership trend has begun reversing for the first time, with potentially significant long term financial and cultural implications for all of us.

FACT: 75% of the drop in new household formations is attributed to student debt.

What’s being done about it?

The good news is that the Consumer Financial Protection Bureau recognizes the ramifications of mounting student debt, and has declared it a top national priority.

It’s educating students, parents and the public on:

  • How to compare student loans, and learn what the payment will ultimately be after graduation.
  • How to manage college money to avoid more debt.
  • How to pay off student debt as efficiently as possible, even when behind on payments.

It’s also holding learning institutions accountable, holding back federal financial aid dollars from schools with unacceptable default rates from the graduates.

If you have a child about to enter college, or know someone struggling with student debt, point them to the Consumer Financial Protection Bureau’s website, www.CFPB.gov, for assistance in getting affordable loans or paying off an existing one.

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