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Homeowners Retain Best Tax 'Break'

March 02, 1986|JOHN BETZ WILLMANN | Special to The Times

WASHINGTON — Income tax itemizers still enjoy the financial comfort of the time-honored Internal Revenue Service features that affect homeowners across our land.

Washington-area real estate executive Wesley Foster recently pointed out that homeowners retain their most important tax feature (call it a "break," if you will). Mortgage interest payments on a principal residence are still deductible.

State and local property taxes are still deductible for 1985 returns. Any changes or "reforms" can only be anticipated in fear. Foster advises: "Stay cool! Even if tax laws are overhauled, key homeowner tax provisions will remain unchanged."

If you bought a home in 1985, some additional tax benefits are likely for most taxpayers. "Points" paid to obtain below-market mortgage rates are considered as interest if they are (and they are) charged by a lender for the use of money. Thus, if you paid two "points" (2%) on an $80,000 mortgage, that's a $1,600 deduction on your 1985 tax return. Foster also advises that some lenders have charges for specific "services" that are not deductible.

If your office in the home is your main place of business, you are entitled to deduct a portion of home expenses given over to the business activity--realty taxes, mortgage interest, operating expenses and depreciation. But Foster warns that you should be prepared to prove to the IRS that you are operating a real business and not just indulging in a hobby.

A room with files, a desk and a telephone strengthens your case for a home-office tax break, and Foster and others also urge taxpayers to keep a log of phone calls and business visitors.

Homeowners occasionally have substantial casualty losses. A storm can damage trees . . . a lawn can be devastated by applied chemicals . . . an unusually high wind can break a window or clog up gutters and cause exterior damage to exterior wood trim or paint. Losses exceeding insurance compensation are deductible.

Homeowners also should remember:

--Any special facilities or equipment installed in the home for medical reasons are legitimate medical expenses. That could be an elevator or a deck entrance for an elderly relative. A swimming pool for a heart patient could be claimed only for the amount above the cost of the improvement that exceeds additional overall value to the residential property.

--If you rent space to relatives, you get a deduction of all expenses connected with the rental--taxes, interest and depreciation. But you must also collect at least 80% of the fair going rental rate.

--Mortgage prepayment penalties are deductible. Many Americans paid off high-interest mortgages and refinanced at lower interest rates. Some might have paid a fee for paying off the old mortgage. That's a form of interest and therefore deductible.

--If you've spent any substantial amount of money to make your home more salable before selling (papering, painting, etc.), those expenses are not tax deductions but they can be deducted from the amount of profit realized from the sale. You must have the work done within 90 days of the sale contract date. This feature applies mainly to persons who sell and take a capital gain (and be taxed on it).

Tax laws are complex and Wesley Foster and other respected realtors advise homeowners to consult with a professional tax adviser or accountant before finishing off a complicated income tax return.

SHORTLY--A Washington realtor (and former trade association executive on the local level) noted the recent resignation of Jack Carlson as top executive of the National Assn. of Realtors after seven years and at least 700 press releases featuring Carlson's name: "To survive, trade association executives have to keep a low profile and use their members' names in press releases" . . . The HUD fiscal budget for 1982 has been trimmed to $5.5 billion. Congress appropriated three times that amount for HUD this year. . . . If you use your car to obtain medical care, you can deduct 9 cents a mile, also 9 cents a mile for business-related moving and 12 cents a mile if you use the car for charitable purposes--such as driving for Meals on Wheels.

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