Our Own Homes Are The Mother Of All Tax Shelters

When it comes to tax shelters, there’s no better or safer place than our own homes. There are a vast number of companies out there spending a lot of money on advertising trying to convince us that we should be sending our hard earned dollars to some island in the sun, where (for a nice fat fee of course) they will keep our money safe and out of the hands of the IRS. Most of these programs, for lack of a better word, are illegal or at the very best not as tax efficient as the claims they make.

Uncle Sam allows us to use our homes as a means of collecting a large number of tax deductions, credits and benefits. These were designed and assigned to law to help us offset the cost of owning our own homes. After all, homeowners are the cornerstone of any good economy. We buy consumable goods and services which creates jobs and supplies much needed dollars in both local and state taxes. These taxable deductions also keep the housing market fueled with new buyers which in turn helps keep the value of our homes going up. It really is only a matter of very simple math. As the demand for more and more homes increase, the supply gets smaller, (they don't make land anymore) - then the market price can only go one way, up. This creates real wealth for future generations of our families. For most of us, that is the “Great American Dream” - owning our own homes and creating real wealth for our retirement.

Our interest payments make up the largest portion of the mortgage payments in the early years of the loan. The interest we pay on our Home Loan, up to a maximum of $1 million in mortgage debt that's secured by a first and second home is tax deductible. These deductions will reduce our taxable income when calculated against our taxes due at the end of the year. The rules on these deductions are not too complicated once you know where to look. The $1 million level applies to joint tax filers. If you file single or separately you receive half the deductions allowed.

The interest we pay on a home improvement loan is also deductible against our end of year taxes, but calculated a little differently. We can deduct all the interest on a home improvement loan so long as the work is classed as “capital improvement”. Repairs, maintenance or cosmetic upgrades do not count and are not tax deductible. Capital improvements increase the home’s value. Adding a new room, a bathroom, anything that prolongs its life such as a new roof or adapting the home for new uses to assist older people or people with disabilities would be included for this purpose.

The Taxpayers Relief Act of 1997 which covers the exclusions on Capital Gains allows married couples who file jointly to keep up to $500,000 tax free profits on the sale of a home used as a principal residence for at least two of the prior five years. This amount is halved for those who are filing single or separately. Our taxable capital gains are reduced by the amount of our selling costs. These include real estate commissions, title insurance, legal fees, advertising, and inspection fees. Capital Gains are calculated on the following basis: the original purchase price, plus the cost of capital improvements, minus any depreciation and the selling cost.

With more and more people creating “Home Based Businesses” there are tax deductions available. If you use a portion of your home exclusively for business you could qualify to deduct a percentage of costs related to that portion. You can Include a percentage of your insurance, repair costs, utility bills and depreciation.

It would appear that the “Grass is not always greener somewhere else” and sometimes the solution to our problem is right there, on our own doorstep.

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Back in the USSA - An Economic Stimulus Update

Back in the United (and Stimulated) States of America. Woo-hoo! After over three weeks of overseas travel, as well as domestic vacation where I just didn't really care what was going on, I've returned to reality and removed my head from the sand trap to take a look at where we are in our quest toward economic recovery and growth. However, I'm tempted to run back to the airport and buy a one-way ticket to Anywhere But Here.

I was expecting to come back to a country pumped with more stimulants than a first grade honors English class, but what I've found is something that more closely resembles a mandated Saturday morning alcohol awareness seminar that even a well operated meth lab couldn't bring to attention. What happen to our $800 billion worth of Adderall and Ritalin that was promised to bring our sleepy, dreamy economy back on its toes and actually participating in the 7:30 AM Pledge of Allegiance? Well, I decided to do a little research and see where we're at.

Just to evaluate where we are, I found that the US unemployment rate is at a gaudy 9.5%. However, construction industry unemployment according to economajic.com stands at 17.4%, however this is off it's recent high of 21.4% in February '09 which is at least movement in the right direction.

As far as construction billings go, the data is not so promising. We're still at declining levels and while the decline seemed to be slowing for a while, the latest numbers are showing an increase in spending declines. Econoday.com provides the following chart of construction spending for the past two years. So what about our much anticipated and much needed stimulus package? Well, the following chart from Recovery.gov shows the timeline for funds being made available for the next seven years. The majority of this money will be dolled out in fiscal year 2010 which starts October 1, 2009, so we've yet to see the flood gates open and we are painfully awaiting its arrival like an avid West Virginia kayaker would before opening day of Gauley season where the dam controlled flow of the Gauley River is allowed to run wild.

So why does the majority of this money come out in FY 2o1o and not immediately? In my opinion, it's an effort to avoid fraud and corruption that could easily be associated with a massive flood of federal money into a greedy and hurting economy. However, this is still a federal spending plan that dwarfs anything preceding it, so a little patience now may pay off in the long-run. I'm hopeful that this plan will not only provide a solid backlog of construction work for the next decade but will also provide some much needed infrastructure and capital improvement that will help people work and live better which could also help our country economically.

Just keep chanting - The USSA ain't far away.

http://www.constructonomics.blogspot.com

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