Real Estate Tax Breaks for 2005

1. Consult with your tax guru, but using just one or two of these idea's can save hundreds, if not thousands, of the tax dollars you will owe April 15, 2006.

1.) BUY A HOME: Sellers are highly motivated during the holidays. Home prices are generally more negoitable, which spells savings. Tax Bonus: If you close on your home before December 31, 2005, loan fee's and mortgage interest are tax deductible.

2.) SELL YOUR HOME: If you lived in your home at least 24 months in the last 5 years, selling your home can generate $250,000 ($500,000, if married) in tax-free capital gains.

3.) REFINANCE: You still have time before the end of the year and interest rates are predicted to continue moving upward. Tax Bonus: Loan fee's can be amoritzed over the life of the loan. If you are refinancing an existing mortgage, you can deduct the entire undeducted loan fee. When refinancing, it pays to obtain a "no cost" refinanced mortgage. The interest rate may be slightly higher, (usually no more than 1/8th of a percent), but the interest you will pay is fully tax deductible.

4.) DON'T SELL YOUR HOME: If your profit exceeds the $250,000 or $500,000 limits, pat yourself on the back and delay the closing until January 2006. You then have until April 15, 2007 to pay the tax you owe on the profit that exceeded the limits.

5.) TAKE OUT A HOME EQUITY LOAN: If you are paying non-deductible interest for cars, credit cards, student or personal loans, take out a home equity line of credit and pay them off. Interest paid on the home equity loan is fully tax deductible.

6.) DEDUCT YOUR MOVE TO YOUR NEW HOME: It doesn't matter if you rent or own, itemize or not, if you changed your job and residence in 2005, you can probably deduct the moving costs on your tax return. To qualify, you must move at least 50 miles.

7.) PREPAY YOUR 2006 PROPERTY TAXES: If your county or town sends your 2006 property tax bill during 2005, which most do, you can pre-pay your 2006 before December 31, 2005 and deduct it in 2005.

8.) PREPAY YOUR JANUARY 2006 MORTGAGE PAYMENT: Mail your payment in time for your lender to receive it in December 2005 and include it on your IRS 1098 mortgage interest statement. Then, you can deduct the interest for January 2006 on your 2005 income taxes.

9.) DEDUCT ANY UNINSURED LOSS OR THEFT: Unfortunately, 2005 was a nightmare in terms of national disasters. Homeowners that were not fully insured suffered huge losses. If your suffered losses at your business or rental properties, you can deduct the full amount. If you suffered personal losses, you can deduct losses exceeding $100 and over 10% of your adjusted gross income.

10.) TAX DEFERRED EXCHANGES: IRS Code 1031 allows you to avoid taxes on your business or investment property sales. To read more about Tax Deferred Like Property Exchanges, see our October 4, 2005 blog, "The Best Fixer-Upper VI: How to Avoid an IRS Shakedown.

Remember, it's not what you make, it's what you get to keep that counts. Use tax planning to avoid paying more than you owe. Always check out all your options with your tax advisor.