The April 15th tax filing deadline is just seven weeks away. That may sound like a long time from now. But it will get here before you know it. If you sold your real estate in Lake Havasu last year, you are entitled to some tax deductions (and a nice little exclusion). Make sure you discuss these with your tax person before you file this year.
First, let us talk about capital gains. When you sell your real estate in Lake Havasu, the profit you receive is called “capital gains” (what you sell it for vs. what you originally paid for the home). The IRS considers this income and worthy of taxing. Now, unlike regular income, the IRS only taxes you on any profit over a specific amount. Individuals may claim up to $250,000 tax-free while married couples may claim up to $500,000 tax-free. Let’s say that you paid $120,000 for your real estate in Lake Havasu several years back. Then, you sold it for $450,000 last year. (This scenario could easily happen in the Havasu real estate market over the past year.) If you are a single homeowner, you only pay taxes on $80,000 of the $330,000 in profit. Married couples pay no taxes on that same profit. While not technically a “tax deduction”, the capital gains exemption still offers relief at tax time.
Now, on to actual tax deductions. You spent money tackling your chore list to get your property ready for the Havasu real estate market. Thank goodness. Without that investment, you might still be waiting for a buyer. Plus, you put money into replacing your windows, upgrading your kitchen, and increasing your curb appeal. As long as these occurred within 90 days of closing on your real estate in Lake Havasu (when you hand over your keys to the new owner), you may include them in your deductions come tax time.
Other tax deductions available when you sell your real estate in Lake Havasu include real estate commissions, home staging fees, advertising/marketing costs, and escrow fees. As long as you lived in the property for at least two of the last five years and used it as your primary residence, you may deduct these expenses on your income taxes. While not a direct deduction, they are subtracted from your total sale, which positively affects your capital gains exemption.
While you owned your home, you paid mortgage interest and property taxes. These could both be claimed as tax deductions when you filed your income taxes. When you sell your real estate in Lake Havasu, you may claim these deductions for whatever amount you paid up until the final sale date. Property taxes are limited to a $10,000 cap (not a problem for most Havasu residents). Interest caps out at $750,000 of mortgage debt when they received their mortgage loan after December 15, 2017 (up to $1,000,000 before that).
Always discuss these tax deductions with your tax advisor/preparer before you file your income taxes. I am not an expert but they are. Tax laws can be complicated and change from year to year. Your tax person should be well versed in current tax law. They can answer any questions you may have. Good luck!
Alexis Steel – 928-303-2199
Keller Williams Arizona Living Realty
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