As a homeowner, there are certain tax breaks and deductions that you can claim, however, these are primarily on your principal residence. So what exactly does that mean and can you deduct anything on rental properties?
In order to qualify for certain tax benefits the home you live in, must be your legal and principal residence. There are interest and tax reductions for investment properties but they fall under different categories.
Here we’re just talking about your principal residence.
Of course, this seems pretty cut and dry; it’s the house in which you live primarily throughout the year but there are differences, certain expectations, and situations where this might be a little bit foggy. If you move out of the house and then rented for sometimes before moving back there are specific facts that are to be determined on a case-by-case basis. If you’ve lived in the home for a number of years without moving out is considered your principal home and residency. This will probably be the address on your driver’s license, voter registration and where you pay your local and/or state income taxes.
If you once lived in the home and now you rented out it’s going to depend on how many months during the year you’ve actually lived in the home in order to take the right tax breaks and benefits. The IRS states that “the mere fact that property is, or has been, rented is not determinative that such property is not used by the taxpayer as his principal residence. If the taxpayer purchases his new residents before he sells his old residents, the fact that he temporarily rents out the new residents during the period before he vacates the old residents may not, in light of all the facts and circumstances of the case, prevent the new residents from being considered as property used by the taxpayer as his principal residence.”
Stipulations also state that the taxpayer is not required to actually occupy the old residents on the date of sale. The IRS will look at particular facts and circumstances in order to make a proper determination. You, as the homeowner, must be able to demonstrate that you did not intend to abandon the house as a principal residence in order to take the tax break.
If you’re looking to keep your primary home as your principal residence you want to do one of several things;
- Sell your home before renting it out.
- Avoid any impressions that you are not abandoning your house as a principal residence.
- If you purchase a new home before the other one sells, keep your old house as your principal residence until it does.
All of these factors will determine the circumstances around a particular case of whether or not the home is your principal residence.
For more information or answers to your questions about real estate, homeownership or buying in Sunset Beach contact my office today.