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Tim Barton, Chartered Financial Consultant

Pepin Wisconsin
715-220-4866

June 5, 2016 by Tim Barton Leave a Comment

Should a Retiree Sell or Stay in Their Home

Should a Retiree Sell or Stay in Their Home

This depends on many factors both financial and personal lifestyle.  If the choice is to sell and move there are financial considerations.  As it is with so many decisions today the tax implications must be considered. Whether you decide to stay or move on here is a quick checklist. 

Homeowner’s Tax Checklist

Certain costs associated with acquiring and maintaining your principal residence, a second home or a residence you rent out are tax deductible, while others are added to your cost basis and used to reduce any taxable gain on the sale of the property.

Closing Costs

Most closing costs incurred in buying a home are added to cost basis (mortgage interest and real estate taxes paid at closing, however, are immediately deductible). Closing costs incurred in selling a home reduce the selling price. 

Real Estate Property Taxes

Deductible in the year paid, assuming you itemize deductions on your federal income tax return. 

Mortgage Interest

Interest is deductible on loans up to $1 million for buying, building or substantially improving your principal residence and one other home. Interest on home equity loans of up to $100,000 is also deductible.

Points

Points paid on loans to buy, build or substantially improve your principal residence are deductible in the year paid.

Improvement and Repairs

Repairs are nondeductible, unless allocatable to business or rental use of the property. The cost of permanent improvements that add to your home’s value or prolong its life are added to cost basis.

Casualty Losses

Unreimbursed damage to your home may be deductible if you itemize deductions (after a $100 reduction, deductible to the extent the loss exceeds 10% of adjusted gross income).

Home Office Expenses

If you are self-employed and use part of your home exclusively and on a regular basis as your principal place of business or as a place of business to meet customers or patients, certain expenses allocatable to the office may be deductible. A home office can qualify as the principal place of business if it is used exclusively and regularly by the taxpayer to conduct administrative or management activities of a trade or business and if there is no other fixed location of the business where the taxpayer conducts substantial administrative or management activities of the business.

Be aware when a home that has been depreciated for business purposes is sold a part or all of those deductions are added back into the gain side for tax purposes.  Consult a qualified tax professional regarding the rules.

Rental Expenses

Certain expenses allocatable to a rental of part of your home may be deductible.  Some retirees rent part of their homes for extra income.  This is a business use and many of the tax rules applicable to a home office will also apply in this case.  

Mortgage Insurance Deduction

Taxpayers with adjusted gross incomes of $100,000 or less who itemize can deduct the full cost of mortgage insurance on loans that were originated after December 31, 2006. The deductible amount quickly phases out above $100,000, so that no deduction is available to taxpayers with an adjusted gross income above $109,000. Under current law, the deduction is available only through 2011.

 

You may ask questions in the comments or contact me privately:

Tim Barton

Chartered Financial Consultant

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Filed Under: Lifestyle, Retirement Planning Tagged With: business, Money, retiree, Tim Barton

About Tim Barton

Growing up during the 60s and 70s Tim saw the real-life effects of sure thing stock investments gone sour. It seemed all the adults around him who did not keep their money in safe investments like insurance, banks and government bonds lost most of it. While they were young, they felt invincible, but as age crept up, their conversations turned to the gloomy reality of lost retirement funds.
In 1976 all those memories started Tim along his career path dedicated to helping people avoid the pain of losing their hard earned dollars. Tim decided to enter the retirement planning business vowing never to cause anyone to lose money. He has kept that promise by focusing on insurance based planning.

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