Home Tax Issues

Question: Can I deduct improvements made to my home?Home Tax Issues....

Answer: Yes, but only after you have sold it because improvements add to the basis of your home.  Your gain is defined as your home's selling price, minus deductible closing costs, minus your basis.  The basis is the original purchase price of the home, plus improvements, less any depreciation.  The IRS defines improvements as those items that "add to the value of your home, prolong its useful life, or adapt it to new uses" - such as putting in new plumbing or wiring or adding another bathroom.

Question: Are victims whose homes are damaged by natural disasters granted any tax relief?

Answer: Damage, destruction, or loss of property from fires, floods, earthquakes and other disasters are deductible from both state and federal income taxes.  If destruction is caused by an event deemed a federal disaster by the president, homeowners can deduct their losses in the tax year before the event happened by filing an amended return.  This helps to dramatically cut the wait for tax refund money that can immediately be used to make repairs or pay for living expenses.

Question: Are special tax breaks available for historic rehabilitation?

Answer: Certified historic structures now enjoy a 20 percent investment tax credit for qualified rehabilitation expenses, if they are income producing properties.  A historic structure is one listed in the National Register of Historic Places or so designated by an appropriate state or local historic district that is certified by the government.  The tax code does not allow deductions for the demolition or significant alteration of a historic structure.  For more information, contact the National Trust for Historic Preservation at (202) 588-6000, or visit its web site at www.nationaltrust.org.  Many states offer tax incentives, reductions and abatement programs for owners of residential historic homes.  These programs are described on the National Trust's web site.

Question: Can I contest my property taxes?

Answer: Many people do, mainly because determining value can often be tricky.  This is especially true in a changing market when local prices either take off dramatically or plunge precipitously, like during the Texas oil bust of the 1980s.
While it is up to a professional assessor to evaluate property value for tax purposes, property owners are usually allowed to contest their assessment until a certain date after they are made public.

Once you contest, you will have to prove why you think your property is worth less - few homeowners contest hoping to pay more taxes!  The two most popular ways for determining value are an appraisal and a comparative market analysis (CMA).  With an appraisal, a professional estimates the property's market value based on recent sales of comparable properties.  A comparative market analysis is an informal estimate of market value performed by a real estate agent based on similar sales and property attributes.  Most agents will offer free analyses to win your business.
Contact your local tax assessor's office for procedures on appealing your property tax assessment.

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