Tax Benefits of Owning a Condo 
                            A New Orleans Condo


 

 Buying a Condo is often the largest investment you will ever make.  This process generally involves a loan with complicated paperwork and possibly other obstacles and other hoops you'll have to jump through along the way.  
Is all this effort really worth it? Absolutely!! 

There are many reasons you may want to purchase a Condo but there are also a few tax benefits you may not be aware of as well.  These tax advantages, can help reduce your costs and leave you with more money when you sell.  Here are a few of those benefits:

1.  Mortgage Interest - This interest is tax deductible on a maximum of $1 million in mortgage debt.  You may also deduct the interest on other debt up to $100,000 which uses your home as security such as a home equity loan. In the early years of the loan most of your note goes to interest. 


If you have $10,000 of interest in a year. You are in the 25% tax bracket then you will save $2500.  Your out of pocket interest is only $7500. That is more than $200 per month saving. The higher the tax bracket the more the savings. This is for Louisiana State and Federal taxes.


2.  Points - When you apply for a loan, your mortgage lender may charge you a variety of fees.  You may choose to pay "points" or a "loan origination fee".  These fees are calculated at 1% of the loan principal and buyers typically pay one to three points.  The cost of points can be fully deducted when purchasing a condo. 


If you borrow 150k and you end up paying a point which is $1500 you can deduct this interest on your taxes. Many opt not to pay this fee. This is a way the lender is able to give you a lower rate. 


3.  Property Taxes - Real estate taxes may also be deducted from your income.  This applies to your principal home and any second home or condo you may own.
 


If your taxes are $3000 and your tax bracket is 25% then you will save $750. This applies to Louisiana State taxes and Federal taxes.

4.  Capital Gain/Profit - Usually profits from the sale of a condo are taxed and are known as a "capital gain".  Thanks to the Taxpayer Relief Act of 1997, married homeowners are allowed to exclude up to $500,000 in profit from the sale of their principle residence and single homeowners can exclude $250,000.  You can file for this capital gain exclusion every two years, as long as the property you sold is your principle residence and has been for the past two of the past five years.  Partial exemptions can be made if you owned your home for one year.

If you are a renter you will walk away with nothing 
and the landlord gets to take some of these deductions.



For more information on the tax benefits of owning a home you can check out IRS Publication 936 which is entitled "Home Mortgage Interest Deduction".  This publication can be found at IRS.gov or ask the person who does your taxes if they happen to have a copy. 

Walter Eric Bouler
Walter Eric Bouler
Realtor
3332 N. Woodlawn Ave New Orleans LA 70006