A renter who buys is gaining on tax man The many benefits of homeownership

MAILBAG

March 03, 1996|By Michael Gisriel

Dear Mr. Gisriel:

I'm thinking about buying a house instead of continuing to rent. Could you briefly summarize the tax advantages of homeownership?

Bob Meyer

Pikesville

Dear Mr. Meyer:

Homeownership gives the buyer several major tax benefits that provide a powerful incentive to buy real estate.

Owning a home is one tax shelter within reach of most Marylanders, especially if use is made of one of the many first-time homebuyer programs available from private or government sources.

L The following are the major tax advantages of homeownership:

* Mortgage interest deduction: All interest paid as part of your monthly mortgage payment is deductible from gross income, before you compute your net taxable income.

For example, if you earn $50,000 and pay $7,000 in mortgage interest over the course of the year, your net taxable income would be $43,000.

* Real estate tax deduction: All of your real estate taxes can be deducted from your gross income.

Thus, continuing the above example, if you paid $1,500 in yearly property taxes, your net taxable income would drop another $1,500 to $41,500.

* Capital-gains tax exemption for those 55 or older.

If after reaching age 55, you want to sell your primary residence, you may realize a one-time capital gain of $125,000 tax-free.

For example, you paid $50,000 for a home 20 years ago, and sell it today for $175,000 and do not buy a new home with the money.

The $125,000 gain could be tax-free if you are over 55.

* Capital-gains taxes deferred on sale of home.

If you are under 55 and sell your home, you do not have to pay capital-gains tax on the profit from the sale as long as you purchase a more expensive home within two years from the date of the settlement of your first sale.

* Tax-free borrowing on the equity in your home.

You can borrow or use the equity that you've built up in your home by obtaining a home equity loan (second mortgage) or by refinancing the first mortgage.

The cash from this borrowing is nontaxable, and all mortgage interest paid on the borrowing is deductible from your gross income.

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