A good tax shelter is hard to come by, but the perfect shelter may be right in front of your eyes. There are many companies which are encouraging people to spend their hard earned money on investments in tropical places where it will be kept safe and away from the IRS. Yes, this type of tax shelter is illegal and really aren’t very efficient in keeping your money away from the tax man. However, most people do not realize that that the government allows us to use our homes as a way of collecting a tax deductions, credits, and benefits. These benefits were established to offset the costs of owning a house. It is said that home owners are the basis to all communities and therefore the economy as a whole.
It is the homeowner who purchases services and goods which in turn supply jobs to the people of community which eventually leads to funding state and local taxes. The deductions help keep the real estate market full of new buyers which helps the prices of houses increase over time. As the public needs more and more houses and the supply of available homes gets smaller, it causes the market price of houses to increase. This creates equity and real wealth in the house and therefore a sound investment which can be passed down from generation to generation. Owning your own home is not just the American dream it can work great as a way to store and built personal wealth.
Most of the money paid for mortgage payment goes toward interest, especially when the loan is brand new. All the interest paid on a home loan is tax deductible. Not only that but you can own up to two homes and the interest payments on both are tax deductible. This type of deduction reduces our taxable income and therefore reduces the amount of taxes we have to pay each year. Additionally any money put out for home improvements or home improvement loans can also be tax deductible. These are calculated differently then mortgage taxes. Only capital investments can be used as tax deductions. Capital investments are those which increase the value of the home. For example adding new room or another bathroom, anything that prolongs roof life, or even adapting the home for the elderly or people with disabilities.
Married couples are allows to have up to $500,000 profit from the sale of home which was the primary residence for over 5 years. This profit is tax free. Single people are allowed $250,000 profit which is also tax free. Houses are great shelters and this is one of the reasons that home based businesses are so popular and successful. When individuals use even part of their home for business purposes they are able to write off a percentage of those costs associated with whatever part of your house you are using for a business. This may include utility bills, insurance, repair cost, and depreciation.