I have a job that travels aot. I currently rent a very small "cheap" place in California. I want to take advantage of the market and buy a house so that I can also use it as a tax break. The one I like is 20 acres on the river that has a house on it back home in Kentucky. I want to buy it and use it for vacations for now but i'm unsure on the taxes. Should I double up and pay it off faster to aviod interest? Or should I make the lowest payment possible to take advantage of the interest while putting the rest in savings. I don't have ANY tax write offs currently and Uncle Sam is going to slam me this year. The place is 140k and someday i plan on building my dream home on it.
2007-08-28 17:34:49 · 6 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
If you are looking for a tax break, definately buy a house, make payments on it and rent it out (even as a vacation home). I'd go with a fixed interest only payment (not a neg am-option arm). Even on 15 & 30 year fixed loans, you are mainly paying interest for the first 3-5 years.
When you become a landlord, there are many tax deductions that you can use as tax breaks. I'm not a CPA, but I am a R.E. Investor. So if it is truly a tax break you are looking for, GO FOR IT!!
check out my RE blog:
http://basicsofrealestateinvesting101.blogspot.com/
Best of Luck!!
2007-08-28 17:55:19 · answer #1 · answered by Anonymous · 0⤊ 0⤋
You can deduct the property taxes and mortgage interest on your primary residence and a second home. Nothing in the tax code says that you must own your primary residence so you can deduct the taxes and insurance on your second home.
Don't expect any sort of massive break by owning a home. The interest and property taxes are deductible if you itemize but the standard deduction is high enough these days that many homeowners are shocked to learn that they get little or no tax benefit from home ownership.
If you're single you might get some benefit from a $140k mortgage but if your married filing a joint return it's entirely possible that there won't be enough interest and taxes to exceed the standard deduction.
If you can get a better rate of return on the money than the interest rate on the mortgage, dump the mortgage in favor of other investment vehicles. From a cash flow position you'll always come out better without the interest expense even though you may lose the tax deduction as you pay it down and pay it off.
2007-08-29 05:05:15 · answer #2 · answered by Bostonian In MO 7 · 0⤊ 0⤋
You can go to the county assessor's office and find out the current taxes and then figure out (probably with their help) what the taxes would be based on the purchase price.
The best thing to do with a loan is to pay 20% down and make sure you get a regular loan with no tricks (variable interest rate). Owning a house will allow you to take a lot more deductions (mortgage interest, student loan interest, tax on vehicle registration, etc.). It might just be that the tax refunds might (might) just be enough to cover your tax bill....guess it depends on your income and how much you are paying in taxes right now (number of deductions).
You can also lease your place out or go the time share route and earn some income on the place for the times you are not using it for vacation. This might actually help you pay it off quicker.
Right now, be particularly careful of the current market. The real estate market is problematic at the moment (not in all markets and not for all types of investments). Just make sure you understand the market.
2007-08-29 00:48:45 · answer #3 · answered by lakewood_lefty 2 · 0⤊ 0⤋
OK, I'm confused. You mention buying a house in CA for the tax break - and that sounds like it would be your second home, so yes you could deduct the mortgage interest and real estate taxes. But then you talk about land in KY that you'd someday build your dream home on - that wouldn't be your primary or second home until you did build the home and actually move into it, so that wouldn't be deductible unless it has a structure on it now that you use as your vacation home, in which case you could deduct interest and taxes on that, but then you couldn't take the expenses of what you buy in CA. You only get two - primary and secondary - not three.
2007-08-29 11:59:06 · answer #4 · answered by Judy 7 · 0⤊ 0⤋
It may be a beautiful idea, but ownership has responsibilities besides taxes. Who is going to mow the grounds? Take care of the place?
As far as income taxes are concerned, you would be limited to the amount of income you make off that land until you live in it your self full time.
2007-08-29 02:57:35 · answer #5 · answered by Jeff H 5 · 0⤊ 0⤋
The 'tax write off' is for mortgage interest on your primary residence .
It will Not be your primary , so it will Not qualify for the mortgage % deduction .
The only thing you could itemize , would be the property taxes , but those are probably less than the standard deduction .
Time to read the 1040 instruction booklet .
Everyone should suck it up and go over it once before they turn 25 .
http://www.irs.gov/
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2007-08-29 00:45:39 · answer #6 · answered by kate 7 · 0⤊ 3⤋