Ruth Mills Team
San Diego Realtor
Welcome to the Ruth Mills Team website FAQ section, where we try to answer some of the questions most asked by our clients. If the information to the right does not provide a satisfactory answer to your question, please
Contact Us and we will search for a better answer.
More Frequently Asked Questions
Real Estate 101
New Tax Laws Give Homeowners Major Benefits
Most homeowners will never have to pay taxes on the profits from the sale of their home. Thatís just one of the results of the 1997 Taxpayer Relief Act. Because this is the most sweeping change in tax law in 10 years, homeowners are asking some important questions:
Q: Under the new laws, if I sell my house for a profit, how much can I keep tax-free?
A: The new law eliminates the tra-ditional system that allowed taxes to be deferred on the sale of the proper-ty as long as the homeowner would "roll over" the profits into the pur-chase of another home within two years. That caused a lot of homeown-ers to "trade up," or buy bigger, more expensive homes, to avoid being taxed. Now homeowners can take profits tax-free - up to $250,000 for a single homeowner and $500,000 for a married couple - without having to "roll over" those profits.
Q: Is this a one-time exemption, like the over-55 rule?
A: No. You can qualify for the exemp-tion as often as every two years, no matter what your age, as long as you have owned and used the property as a principal residence for at least two years during the five years prior to the sale. Therefore, this exemption also replaces the over-55 rule.
Q: Can I help my kids buy their first home with money from my IRA?
A: Why, as a matter of fact, you can! The new tax lawas allowyou to make a penalty-free withdrawal from your IRA of up to $10,000 to help purchase a first home. (In addition, you can with-draw any amount penalty-free to pay for certain higher education expenses.)
Q: Can I still take a tax deduction for each of my children?
A: Even better - now you can take a tax credit. As opposed to a tax deduction, which is subtracted from your taxable income, a credit is sub-tracted from your final tax bill. For the 1998 tax year, you can take a tax credit of $400 for each qualifying dependent under age 17. After 1998 the tax credit goes up to $500.
Q: So Iím out of luck if my kids turns 18 and heads off to college?
A: Not really. Even though you lose the $500 tax credit, you can nowget a tax break on the costs of college tuition and fees. The Hope income tax credit, of up to $1,500 per year for the first two years, can be applied toward the qualifying education expenses of you, your spouse or your dependents. The Lifetime Learning tax credit (available after June 30, 1998) of up to $1,000 per year is avail-able for qualifying expenses. You may take either credit in any one year, but not both. Or you can elect to take a tax deduction of up to $2,500 for the interest paid on qualified education loans. This deduction is phased in over the next few years (up to $1,000 this year, $1,500 next year, and so on), and cannot be used in conjunction with one of the above tax credits.
Q: Does the newtax law provide for any home office tax breaks?
A: Yes. Beginning in 1999, a home office will qualify as a principal place of business if it is separate from the home and used regularly to conduct business that is not conducted else-where. This change will help taxpay-ers who spend much of their time working at locations outside the home, but who conduct their admin-istrative and management activities in the home office. Under previous law, because paperwork was not con-sidered as important as business conducted outside the home office, no home office deductions were allowed. See your tax advisor for more information about how the new tax laws affect your individual situation.
This information is provided as a service. As every situation varies, it is strongly advised to seek counsel from independent tax advisors, tax attorneys, and/or CPAs.