Q. I am thinking about selling my current house and buying a new house. How will this decision impact my income taxes?
A. According to the taxpayer Relief Act of 1997, you can sell or exchange your primary residence, experience up to $250,000 in profits on the sale, and not be subject to capital gains taxes.
Married couples under certain circumstances can realize up to a $500,000 profit and not be subject to capital gains taxes. These exemptions apply even if you do not buy a house of greater value than your present home.
A homeowner can only take advantage of this exemption once every two years, and you must have lived in the home that you are selling as your primary residence for two years prior to the sale in order to reap the benefits.
This act replaces the old rule of thumb stating that you can only obtain this exemption one time after you reach the age of 55.
Q. I refinanced my home recently. What major mortgage expenses can I write-off on my taxes?
A. In most cases, the interest you paid on your old loan and your new loan, up to $1 million, can be deducted. If you were deducting discount points and origination fees annually on your old loan, any remaining balance of these fees that have yet to be deducted can be deducted for the tax year in which you refinanced.
If you paid such fees for your new loan, they have to be deducted over the life of your new loan. If, for example, you paid $3,000 in points on a new 15-year loan, you could deduct $200 every year until you mortgage is paid in full.
A portion of these costs may be deducted for the current tax year if some of the loan proceeds were used for improvements. Consult with you tax advisor for additional deductions and/or restrictions.