March 12, 2024 • 24 mins
In this episode, Chris & John cover the beneficial sphere of tax advantages that come with homeownership. This conversation is a must-listen for current and prospective homeowners aiming to understand the financial and tax implications of owning a primary residence. The duo unpacks several key benefits, providing listeners with actionable tax tips that could lead to significant savings.
Throughout the episode, Chris and John highlight the immediate tax deductions available through mortgage interest and property taxes, emphasizing the importance of itemizing deductions for maximizing returns. They also explore lesser-known incentives, such as energy-efficient home improvement credits and the significant capital gains exclusion for primary residences, revealing strategies that can support a homeowner’s financial growth. For homeowners pondering the value of renting out their property, the Augusta rule offers an attractive tax loophole, allowing income from rental properties to be tax-free under certain conditions. The episode serves as a concise guide for navigating the intersection of homeownership and tax planning, providing enriching content for financially savvy listeners.
Key Takeaways:
- Homeownership offers tax deductions on mortgage interest, property taxes, and mortgage points if you itemize your deductions.
- Energy-efficient home improvements can lead to federal tax credits, potentially adding value to the home while offering tax savings.
- The Section 121 exclusion allows homeowners to exclude up to $250,000 (single filer) or $500,000 (married filing jointly) of capital gains from the sale of a primary residence.
- The Augusta rule enables homeowners to rent out their property for up to 14 days per year and excludes the rental income from taxes.
- Tax benefits are designed to encourage homeownership and contribute to community stability and economic growth.
Notable Quotes:
- "Homeownership does create property tax revenue. It creates more sense of community. So there's a lot of value to a community where you have a high percentage of homeownership." - Chris Picciurro
- "If you own a primary residence and you sell it, most likely you're going to get a full or partial exclusion from any capital gain." - Chris Picciurro
- "If you're renting a property, the rent you pay is a personal expense. There's no deduction for that. That's just the way it is. But if you own a property and you itemize your tax deductions, your mortgage interest, your property taxes, and any mortgage points paid are deductible." - Chris Picciurro
- "Imagine someone lives in Boise, Idaho. They get elected to the House of Representatives. They go live in Washington, DC, buy a house there, live there for two years, do their term, they don't get reelected. They sell their home in Washington. Guess what? Conveniently, they won't pay a capital gain on that because they lived there for those two years." - Chris Picciurro
- "Rent your house out for up to 14 days and absolutely exclude all of that rental income from tax." - Chris Picciurro
Resources:
- Join the Teaching Tax Law community for personalized tax advice and updates: teachingtaxlow.com
- Connect with our guest Chris Picciurro and the podcast team through the Defeating Taxes private Facebook group: defeatingtaxes.com
Episode Sponsor:
Legacy Lock (www.teachingtaxflow.com/legacy)
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Intro (00:04):
Welcome to the Teaching Tax Flow podcast, where the goal
is to empower and educate you tolegally and ethically minimize
taxes paid over your lifetime.
John Tripolsky (00:17):
Everyone, welcome back to the Teaching
Taxable podcast, episode 74today. We are gonna talk about
those tax benefits that you mayor may not know about when it
comes to home ownership. So getready for this one, hang on,
grab the pen, paper, notebook,whatever you like to write on,
and let's get into it. Butbefore we do that, let's take a
brief moment to thank oursponsor on this episode.
Ad Read (00:41):
This podcast is brought to you by Legacy Lock. If you
are new to estate planning orsimply need to review your
current plan, Legacy Lock makesit as easy as pie. Legacy Lock
is a unique platform thatenables you to easily complete
your attorney drafted documentsconveniently from the comfort of
your home or office. Your firststep to this peace of mind is
simply visiting teaching taxflow.com/legacy.
John Tripolsky (01:05):
Welcome back to the show everybody. John here
from the Teaching Tax Flow team.We're gonna talk about those tax
benefits on homeownership. Andas always, Chris Pacuro, welcome
back to the party, sir. How arewe doing today?
Chris Picciurro (01:21):
I'm fabulous. Thank you for asking, and this
is a topic that we get quite abit, not only in our private
Facebook group, but also just inthe teaching taxable community.
This is really interestingbecause it homeownership, a lot
of times, represents a lot ofthings that are non tax related
(01:43):
benefit. And we're gonna diveinto the tax benefits of
homeownership because as youknow, John, tax laws are written
to encourage and discouragecertain behavior, and the
government feels that owning ahome in a high percentage of
home ownership in a community issomething that they want. But
some of the nonfinancialbenefits of homeownership is
(02:03):
just pride of your home.
A lot of times, it's the firstbig purchase, a a couple makes
when they come together. A lotof times, it cements someone
into a new community. So, yeah,there's there's a lot of, lot of
non financial, non tax benefitsto homeownership. And I think
(02:24):
that, I don't know. I mean, I'veI've rented before.
I mean, I've been a homeownerfor the gosh. 27 of the last 20
or I don't know. 26 of the last25 or 25 of the last 26 years.
We rented for 1 year when wemoved to Tennessee when we were
transitioning. But yeah.
And and it was just kinda Iliked our little place, Some
(02:46):
fond memories that we rented fora year, but I didn't have that
sense of permanence, if thatmakes sense.
John Tripolsky (02:50):
There's a lot of, a lot of warm and fuzzies.
And we'll talk about the well,you get warm and fuzzies from
some of the tax benefits too,but, you know, it's it's funny
that we do this. Right? Becauseit's Chris, as you obviously
know, and and a lot of ourclients, friends, and family
obviously know. So my familylives still here in Michigan.
Our house is about a 170 yearsold. So sometimes I would love
(03:11):
to go back and put me in arental, put me in a condo. My
brain cells insanity wouldprobably thank me. But yeah. All
that aside, how in the world dopeople actually get tax benefits
from owning a home?
And we're gonna we're gonnafocus mainly on primary
residence, which is the homethat they live in, not rental
(03:32):
properties. That's a wholenother investment strategy. And
a lot of detail goes into thathuge benefits to that. But we
are gonna focus on the house youbuy, the house you pay on or had
paid on and live in today. Solet's start this off, Chris.
Maybe I'll I'll let you drivethis one a little bit more than
normal and really just kindawalk us through again kinda, you
know, what's out there. Youknow, what do people have? What
(03:55):
benefits do they have? When dothey have them, etcetera? So
I'll let you kinda steer theship or drive the nail, whatever
we wanna say here.
Purchasing
Chris Picciurro (04:05):
a primary residence does have a lot of tax
advantages. The majority of themwell, actually, they're varied.
So let's start off with thefirst, the lowest hanging fruit,
which is gonna be the ability todeduct expenses that would
otherwise be personal in natureand nondeductible. So if you're
renting a property, the rent youpay is a personal expense.
(04:27):
There's no deduction for that.
That's just the way it is. Butif you own a property and you
itemize your tax deductionscheck out that podcast episode.
I don't know what number it is.Probably should've looked. Check
out I love the shameless plugs.
Yeah. Exactly. Gotta have a lotof this one. Shameless plug.
John Tripolsky (04:47):
You know what's funny? Before we get into this
too, you know you know what? Ialways say, and I haven't said
this in probably about 2 monthsnow, Is, you know, we're we're
very good at not datingourselves on how long we've been
on this planet, but we've alsowe've been doing this podcast
for a while now. You do realizeso 70 some odd episodes every
single week. And we reallyhaven't doubled up on any
(05:10):
topics.
So I'm sure coming up here soon,we're gonna have to start
recapping or I should say, youknow, getting back on some of
them. There's been updates. But,yeah, I just wanted to throw
that out there. We are we arecommitted to this, sir.
Chris Picciurro (05:22):
Absolutely. So we we do have a podcast on,
itemizing deductions. We have apodcast on mortgage readiness
with our friend, Brenna. So but,anyway, if you itemize your
deductions, your mortgageinterest, your property taxes.
Now, again, I am aware thatthere are some limitations to
(05:44):
the state and local income taxdeduction.
And by the way, that mightchange, with some pending tax
legislation. But your propertytaxes, your mortgage interest,
and any mortgage points paid aredeductible, meaning they can
offset your taxable incomeinstead of the rent that you're
paying just not being adeduction at all. That's
(06:08):
probably the that's the one ofthe primary benefits, but also
it's a benefit that just keepsgiving year after year. So
though the fact that themajority you know, you if you
have a whole of how payment oryou have a mortgage payment, it
gets broken down into yourinterest portion and then
principal. Principal is payingdown your loan, but any of that
(06:29):
mortgage interest deduction isdeductible, especially with
mortgage rates a little highernow than they were a couple
years ago.
That deduction could be morevaluable. And then points.
Points are something that youpay when you obtain a mortgage
loan at the beginning of theloan. They're they're a one
point equals 1% of the loanamount. So if you bought if you
have a mortgage and you, you hadto pay 2 points and the mortgage
(06:53):
is 2 $100,000, you would havepaid $4,000 worth of points at
the beginning of the mortgage.
A lot of times those points arethere either, to get your
mortgage rate lower or it levelsout the risk that the
underwriters have for thatlending that lender, or lendee,
I should say. So but, anyway,mortgage points, mortgage
(07:14):
interest deduction, and propertytax deductions on a year to year
basis are deductible instead ofnondeductible the rent. So
that's a big advantage, John.
John Tripolsky (07:24):
And that's one of one thing too. I I mean, if
I'm if I'm correct, I feel likethose are 2 questions that are
pretty commonly asked, and Idon't think a lot of people miss
those, right, when it comes timefor for tax prep. I I mean, even
some of the yeah. I wouldn't saysome. I believe all of the
softwares out there that I'veever come across, DIY ones, they
(07:45):
ask those questions pretty cutand dry.
Now how much did you how muchwas your mortgage? How much was
your interest? You obviously getthose statements from, from your
mortgage companies. So from yourlender every year, they're
pretty cut and dry. There's nota lot of gray area in that.
And then obviously, propertytaxes. That's a big one.
Chris Picciurro (08:03):
But for traditional mortgage, you're
gonna receive a form 1098 at theend of the year, and that will
report your mortgage interest inpoints. But it also if you have
an escrow account, it'll alsoinclude your property taxes. So
I think you need to be you youneed to be aware of is a lot of
times, those mortgage servicingcompanies can change. So even
though your mortgage is the samemortgage note, you may have more
(08:23):
than 1 servicer. So sometimes asa tax professional, a a client
could submit their mortgagestatement to us, and we're like,
gosh.
Your mortgage interest is halfof what it was last year. Okay,
because the mortgage companychanged, and they will actually
have to dig up that secondstatement by no fault of the
taxpayer. So just having thosedeductions tax, you know, tax
(08:44):
deductible, those expenses taxdeductible is a huge benefit.
Those are the the ones those arethe benefits that most people
know about. Now let's talk abouta couple we'll say 3, but we'll
say 3 benefits that you mightnot know about.
The first in in I'm gonna startwith the one that you from from
(09:05):
basically the most known to theleast known. Okay? So the most
well known extra benefit wouldbe the ability to make energy
efficient improvements to yourhome, which probably add value
and still get a credit, afederal tax credit. Some states
have provided credit, for thatexpenditure. And we know, John,
(09:28):
yes, another plug for anepisode, credit versus tax
deduction.
The difference, a credit is morevaluable in general than a tax
deduction. So you can dosomething in your home that adds
value and you get paid a portionof that cost by from the
government because of you'redoing something that the
(09:49):
government wants you to doeither and and to increase the
energy efficiency and reduce thestrain on the grid. That's
something, John, that you'repretty familiar with.
John Tripolsky (09:56):
Yeah. Yeah. I mean, really and, you know, I
know we're talking about thetax, you know, the tax side of
this, but think about that too.So that's a that's kind of a low
hanging fruit for some people. Ithink if you if you dive into
it, you may actually be reallysurprised on how easy.
I won't say inexpensive, butsome of those home energy
efficiency improvements, are. Soit's kind of a in the that you
(10:18):
went on multiple sides. Right?So you're getting a tax credit
for it, but, obviously, they'reput in place really for you to
save money on some of yourutilities as well. So check that
out.
We got a podcast on there.
Chris Picciurro (10:28):
Yeah. And and there are some now with with
the, new tax laws. There aresome credits available for
renters. It's just not manypeople renting a property are
going to go through the expenseof making an energy efficient
home improvement when they'rewhen they're a renter.
John Tripolsky (10:41):
And and if anybody wants to, I mean, I will
gladly go buy a property and putyou in it because you will Let's
be honest.
Chris Picciurro (10:49):
Be the dream renter.
John Tripolsky (10:50):
Right. They had right. Right.
Chris Picciurro (10:52):
So the other one, the second that that some
people know about, but,actually, it's funny. We just
had someone in, do a, a 1 on 1tax coaching with in our
community that I was workingwith. And one of the few one of
the items they wanted to talkabout was they're very concerned
that they sold their property.They're moving into another
property, and they weren't awareof what we call the section 121
(11:15):
exclusion or the capital gainsexclusion. And I said, how long
have you and your husband andfamily lived in that other
property?
And this person said, I think itwas, like, 8 years. I'm like,
oh, jeez. Have you ever rentedit? No. You're gonna you can
exclude married couple up tohalf a $1,000,000 worth of
capital gains because it wasyour primary residence.
(11:36):
So in general, if something forproperty was your started off as
your primary residence and hasbeen your primary residence for
2 of the last 5 years, anycapital you could exclude a
capital gain up to for notsingle filers, $250,000, and
married filing joint filers,$500,000 of capital gain. So the
(11:57):
the capital gain exclusion isyes. It's nice to get deductions
for the mortgages just forproperty taxes, but the capital
gain exclusion is probably themost valuable dollar wise for,
primary homeownership. So I'llgive you an example real life.
So when when we we moved downhere to Tennessee about 8 years
ago, moving from just outsideDetroit to just outside
(12:20):
Nashville, you know, was alittle bit of an adjustment
market wise.
We have a lot of people fromCalifornia, New York, New
Jersey, Chicago moving here tothe Nashville area over the last
decade, and for them, thehousing prices weren't a sticker
shock like it was for us. Right?But what helped us out a lot was
our property we owned inMichigan. We owned it for about
5 years and appreciated a a nicepercentage. Luckily, we bought
(12:44):
at the right time when the 2010,if you remember, the market was
in the dumper, especially in theDetroit area.
GM and the city of Detroit justwent bankrupt. Sold that in
2016, but my wife and I wereable to exclude our entire
capital gain from that propertyand used that to, you know, as
an additional down payment forthis property here. So point is,
(13:08):
real life example, even thoughyou're paying think about that
mortgage payment, John. You'repaying some to the principal.
You're paying some to interest,but paying down that principal.
Eventually, when you sell theproperty, you're gonna get that
money back. Right? And it couldbe tax free. So section 121
exclusion, we do have a separatepodcast on that. There are a lot
of really you know, noteveryone's situation is cookie
(13:30):
cutter.
Right? Because if you have like,if you rented out a portion of
the property our good friend,Andrew Pulos, who is in our
teaching tax law community, anamazing enrolled agent in in
Atlanta just talking to himabout one of his clients, and I
owned a duplex. And one side wasa primary residence. The other
side was rented out, and and,you know, that's a partial 121
exclusion. So not everyone'scookie cutter, but the point is
(13:53):
if you own a primary residenceand you sell it, most likely,
you're gonna get a full orpartial exclusion from any
capital gain.
Those laws changed, I wanna say,golly, maybe 15, 20 years ago
where you did previously, youhad to buy another property for
at least the value of the oneyou sold. Now you don't have to
do that. You you could've donewhat my wife and I did. We sold
(14:14):
our property in Michigan andrented for a year here. I didn't
have to buy a replacementproperty.
Now some people are like, why?This is a really weird rule.
Remember, remember that taxagencies are your involuntary
business partner. John, how longis the term of someone in the
house of representatives?
John Tripolsky (14:34):
Oh, man. They're gonna stump me on this one. Oh,
I've I've turned off myeverything I know about
politics.
Chris Picciurro (14:39):
That's alright. It's 2
John Tripolsky (14:40):
of the next couple months. 2 years. Okay. I
was gonna I was gonna say 2,but, you know, I know.
Chris Picciurro (14:45):
I know you were. They, usually, you're
putting me on the spot, and I'mI'm I might be giving you the
middle finger, silently. But
Disclaimer (14:52):
You caught
John Tripolsky (14:52):
me on that one. Don't worry. I I was doing it.
Don't worry.
Chris Picciurro (14:54):
You just couldn't see it. So there's no
coincidence that that's thethat's the time frame for the
section 121. Imagine someonelives in, you know, Boise,
Idaho. They get elected to thehouse of representatives. They
go live in Washington DC, buy ahouse there, live there for 2
years, do their term.
They don't get reelected. Theysell their home in Washington.
(15:15):
Guess what? Conveniently, theywon't pay capital gain on that
because they lived there forthose
John Tripolsky (15:19):
2 years.
Chris Picciurro (15:20):
So Sneaky sneaky. Yep. So then we've got
that. So for capital gainexclusion is a huge advantage.
And then the final one is a issomething that you've you've,
made a lot of people in theteaching tax law community aware
of.
The Augusta rule. The Augustarule named after Augusta,
(15:40):
Georgia, home of the, masters.I'm not a golfer, so I had to
actually stretch my brain onthat one. And with that good,
man.
John Tripolsky (15:49):
You get it'll stretch out. You gotta you gotta
take the long drive.
Chris Picciurro (15:52):
So the Augusta rule
John Tripolsky (15:53):
says that
Chris Picciurro (15:53):
a homeowner can rent out their primary residence
for up to 14 days per year andnot report any of the rental
income on their tax return. Sothink about that. Think about
special events. Most big citieshave special events. Now there's
an inconvenience that you haveto evacuate your home, but I you
know, think about the Super Bowlor the, you
John Tripolsky (16:17):
know, like I know. South by Southwest in
Austin.
Chris Picciurro (16:19):
South by South and and I know that the World
Cup's coming to the, theAmericas. Right? So if you live
in an area that and you wannarent your house out for 2 weeks,
yeah, there might be somepartying going on. There might
be some but guess what? If youcan rent your house out for a
couple weeks and pocket 5, 6,maybe $10 per year, that's tax
free.
(16:39):
So especially if you live in,like, Indianapolis area and you
you wanna rent your house outfor the Indy 500, it doesn't
matter. Rent your house out forup to 14 days and absolutely
exclude all of that rentalincome from tax. There are some
special rules for people thatown businesses and rent their
house to their business underthe Augusta rule. It goes beyond
the scope of of this podcast. Ifyou have questions about that,
(17:02):
jump into the jump into our, ourcommunity.
But, yeah, the Augusta rule. Andand I'm telling you, you know,
think about, John, think aboutwhat like, think about the
Daytona 500 or or could even itcould be any especially any any
city that, you know, even thinkabout Northern Michigan. Right?
I mean, during 4th July week orLabor Day week, a lot of people
(17:26):
that live in those smallercommunities, it's fun to be
around, but when you've got 10times amount of people that are
in your community that use thatare usually there, If you live
there, you wanna get out ofthere. You know, CMA Music Fest
here.
I mean, Nashville, we got a inFranklin, specifically, we have
so many events that we could wecould evacuate for. And Yeah.
John Tripolsky (17:44):
Well, I'm gonna wait. I'm and I'm gonna be
leaning on you a little bit forthis one here for a little bit
of forecasting. So we all knowthat you're gonna go pro in
pickleball very soon.
Chris Picciurro (17:56):
Oh, boy. And by
John Tripolsky (17:57):
the way, I'm I'm the one that threw this out
there now. Usually, it's youthat talk about pickleball. So
I'm gonna lean on you to tell mewhere the world championship of
pickleball is gonna be. I'mgonna go buy a place there and
be ready to rent it out. So
Chris Picciurro (18:10):
That's a good that's a good question, Daniel.
I'm far from there.Unfortunately, you know, the
last week or so, I feel like Ihaven't been on my a game. But
the you know, I guess I don'tknow what the world
championship's gonna be. I butbut that's alright, though,
John.
You you know, it's probably itmight not be in the United
(18:31):
States, first of all, so youwouldn't get the Augusta rule.
But but but in all seriousness,I mean, there's a lot of
tournaments in Arizona. Thinkabout spring training, you know,
for for a lot of baseball teamsin Phoenix area and all over
Florida. So there are a lot.John, don't you I mean, you live
(18:51):
outside a certain college townthat I Yeah.
Don't love.
John Tripolsky (18:57):
Your favorite place. That's t. Oh. But I also
You would know you're awolverine.
Chris Picciurro (19:02):
If you live in a college town like Ann Arbor,
Michigan, you you could rentyour house out for the weekend 7
times to people that wannatailgate, that wanna come in for
football games, and pay no taxon that. Not a bad gig.
Beautiful thing.
John Tripolsky (19:19):
No. Not at all. Maybe I'll go buy a farm, start
growing, cucumbers for pickling,and then I'll build a A pickle.
Is a whole this is a whole othertopic. Well yeah.
Yes. But that's and, Chris, ityou know, it all joking aside.
Right? I I think a lot of theseand, again, as I mentioned in
our previous show, really ourour purpose here is to not I
(19:42):
shouldn't say expose. I don'twant to make it sound like
we're, you know, therelationship scandal podcast
here, but really just put it infront of people that these
opportunities do exist.
That really aren't top of mindfor the average taxpayer. They
might think of it as, wow, youknow, great. I can write off my
mortgage interest. And they'reexcited about that because they
(20:04):
didn't know you could even dothat. But so many other things.
So many other things. And as,you know, we talk a lot about in
real estate investing on thatside for our for our REIs, our
real estate investors. You know,that that whole all those
efforts are built around taxstrategy because it's based
around money. Right? Like, it'sthe tree like a business.
It is a business in its sense.Look. So if you plan on owning a
(20:26):
home, there are x opportunities.
Chris Picciurro (20:29):
Well and typically, you know,
communities, no matter what thesocioeconomic landscape is,
typically, communities that havea higher percentage of
homeownership, have a littlemore stability. They you know,
homeownership does createproperty tax revenue. It creates
more, sense of community. And,you know, so there's a lot of
(20:51):
value to a community where whereyou have a high percentage of
homeownership. So, yeah, I mean,that's, you know, though so
that's something to consider.
Now, obviously, you know, if youif you buy and sell a property,
there's some there's some costsassociated with that. So if
you're only gonna be in a homefor a short period of time,
you've gotta factor that out.But in general, a lot of times
(21:12):
we hear people, well, yeah, Iwanna buy a house because
there's some no, it's good fortaxes. If you ever push anyone
on and say, what do you mean?What's how does it help you?
A lot of times they don't know.So if you do that, point them
into this podcast and you'll beand we'll say thank you very
much.
John Tripolsky (21:30):
Absolutely. As I as I mentioned in the last show,
I think I said it as, you know,if if you don't listen to this,
well, we can't be friends. But,you know, maybe what we'll do
is, you know, that we talkedabout the Augusta rule briefly.
Maybe we'll create like theteaching tax flow rule and and
push that along. But really allit would be is based around what
we're doing anyways, helpinglegally and ethically reduce the
taxes you pay in your lifetime.
(21:52):
But thanks, Chris. Thanks forrunning through this man. I'm so
I mean, some of this obviously Iknew about, but it's good to
hear it and kind of see it alllaid out, you know, in in one
space. And in a sense, you kindof create a checklist. You know,
if you're thinking about buyingyour first home, you know, if
you're thinking about, hey,should I get rid of this, move
into a rental, etcetera?
I mean, obviously, a lot offactors play a part of that,
just not how much I can writeoff come tax time. But, again,
(22:16):
go check out some previousepisodes we have. A lot of what
we have talked about even todate, you know, we've been doing
it a while like we talked about,really kinda leads up to this.
So I I'm glad we did this one inthe middle of some other topics
that we that we're planning for.And as always, as I close out,
we will see everybody back here,same time, same place here on
(22:36):
the Teaching Tax Flow podcastnext week.
Hey, everyone. Thanks forhanging out with us here on this
episode talking abouthomeownership and the tax
benefits behind it. So, any morequestions you have, shoot us an
email hello at teaching tax lawdot com, or as always, jump over
(22:59):
to that defeating taxes privateFacebook group. There's your
invite. Just go to defeatingtaxes.com.
It'll send you directly thereand as Chris actually mentioned
in this show, if you have afriend or anybody, family
member, anybody that's beenmaybe they don't know that any
of this exists. Maybe they own ahome. Maybe they don't think it
really does anything for them.Send it to this podcast. Let
(23:21):
them listen to it or evenbetter.
You listened to this podcast,you go to the dinner table, and
you share your knowledge, andyou can take credit for it.
Don't even tell me you heard itfrom us. You take the credit.
You took the time to learn it.That's what we are here for, to
educate and empower you toreduce your taxes and make you
smarter come dinner time withthe family and friends.
(23:42):
So thank you again for joiningus. We will see you very soon
back here on the podcast.
Disclaimer (23:54):
The content provided is for educational purposes
only. We encourage you to seekpersonalized investment advice
from your financialprofessional. For all tax and
legal advice, please consultyour CPA or attorney. Investment
advisory services are offeredthrough Cabin Advisors, a
registered investment adviser.Securities are offered through
Cabin Securities, a registeredbroker dealer.
The content of this podcast doesnot constitute an offer of
(24:16):
securities. Offerings can onlybe made through an offering
memorandum, and you shouldcarefully examine the risk
factors and other informationcontained in the memorandum.
Welcome to the Teaching Tax Flow podcast, where the goal
is to empower and educate you tolegally and ethically minimize
taxes paid over your lifetime.
John Tripolsky (00:17):
Everyone, welcome back to the Teaching
Taxable podcast, episode 74today. We are gonna talk about
those tax benefits that you mayor may not know about when it
comes to home ownership. So getready for this one, hang on,
grab the pen, paper, notebook,whatever you like to write on,
and let's get into it. Butbefore we do that, let's take a
brief moment to thank oursponsor on this episode.
Ad Read (00:41):
This podcast is brought to you by Legacy Lock. If you
are new to estate planning orsimply need to review your
current plan, Legacy Lock makesit as easy as pie. Legacy Lock
is a unique platform thatenables you to easily complete
your attorney drafted documentsconveniently from the comfort of
your home or office. Your firststep to this peace of mind is
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John Tripolsky (01:05):
Welcome back to the show everybody. John here
from the Teaching Tax Flow team.We're gonna talk about those tax
benefits on homeownership. Andas always, Chris Pacuro, welcome
back to the party, sir. How arewe doing today?
Chris Picciurro (01:21):
I'm fabulous. Thank you for asking, and this
is a topic that we get quite abit, not only in our private
Facebook group, but also just inthe teaching taxable community.
This is really interestingbecause it homeownership, a lot
of times, represents a lot ofthings that are non tax related
(01:43):
benefit. And we're gonna diveinto the tax benefits of
homeownership because as youknow, John, tax laws are written
to encourage and discouragecertain behavior, and the
government feels that owning ahome in a high percentage of
home ownership in a community issomething that they want. But
some of the nonfinancialbenefits of homeownership is
(02:03):
just pride of your home.
A lot of times, it's the firstbig purchase, a a couple makes
when they come together. A lotof times, it cements someone
into a new community. So, yeah,there's there's a lot of, lot of
non financial, non tax benefitsto homeownership. And I think
(02:24):
that, I don't know. I mean, I'veI've rented before.
I mean, I've been a homeownerfor the gosh. 27 of the last 20
or I don't know. 26 of the last25 or 25 of the last 26 years.
We rented for 1 year when wemoved to Tennessee when we were
transitioning. But yeah.
And and it was just kinda Iliked our little place, Some
(02:46):
fond memories that we rented fora year, but I didn't have that
sense of permanence, if thatmakes sense.
John Tripolsky (02:50):
There's a lot of, a lot of warm and fuzzies.
And we'll talk about the well,you get warm and fuzzies from
some of the tax benefits too,but, you know, it's it's funny
that we do this. Right? Becauseit's Chris, as you obviously
know, and and a lot of ourclients, friends, and family
obviously know. So my familylives still here in Michigan.
Our house is about a 170 yearsold. So sometimes I would love
(03:11):
to go back and put me in arental, put me in a condo. My
brain cells insanity wouldprobably thank me. But yeah. All
that aside, how in the world dopeople actually get tax benefits
from owning a home?
And we're gonna we're gonnafocus mainly on primary
residence, which is the homethat they live in, not rental
(03:32):
properties. That's a wholenother investment strategy. And
a lot of detail goes into thathuge benefits to that. But we
are gonna focus on the house youbuy, the house you pay on or had
paid on and live in today. Solet's start this off, Chris.
Maybe I'll I'll let you drivethis one a little bit more than
normal and really just kindawalk us through again kinda, you
know, what's out there. Youknow, what do people have? What
(03:55):
benefits do they have? When dothey have them, etcetera? So
I'll let you kinda steer theship or drive the nail, whatever
we wanna say here.
Purchasing
Chris Picciurro (04:05):
a primary residence does have a lot of tax
advantages. The majority of themwell, actually, they're varied.
So let's start off with thefirst, the lowest hanging fruit,
which is gonna be the ability todeduct expenses that would
otherwise be personal in natureand nondeductible. So if you're
renting a property, the rent youpay is a personal expense.
(04:27):
There's no deduction for that.
That's just the way it is. Butif you own a property and you
itemize your tax deductionscheck out that podcast episode.
I don't know what number it is.Probably should've looked. Check
out I love the shameless plugs.
Yeah. Exactly. Gotta have a lotof this one. Shameless plug.
John Tripolsky (04:47):
You know what's funny? Before we get into this
too, you know you know what? Ialways say, and I haven't said
this in probably about 2 monthsnow, Is, you know, we're we're
very good at not datingourselves on how long we've been
on this planet, but we've alsowe've been doing this podcast
for a while now. You do realizeso 70 some odd episodes every
single week. And we reallyhaven't doubled up on any
(05:10):
topics.
So I'm sure coming up here soon,we're gonna have to start
recapping or I should say, youknow, getting back on some of
them. There's been updates. But,yeah, I just wanted to throw
that out there. We are we arecommitted to this, sir.
Chris Picciurro (05:22):
Absolutely. So we we do have a podcast on,
itemizing deductions. We have apodcast on mortgage readiness
with our friend, Brenna. So but,anyway, if you itemize your
deductions, your mortgageinterest, your property taxes.
Now, again, I am aware thatthere are some limitations to
(05:44):
the state and local income taxdeduction.
And by the way, that mightchange, with some pending tax
legislation. But your propertytaxes, your mortgage interest,
and any mortgage points paid aredeductible, meaning they can
offset your taxable incomeinstead of the rent that you're
paying just not being adeduction at all. That's
(06:08):
probably the that's the one ofthe primary benefits, but also
it's a benefit that just keepsgiving year after year. So
though the fact that themajority you know, you if you
have a whole of how payment oryou have a mortgage payment, it
gets broken down into yourinterest portion and then
principal. Principal is payingdown your loan, but any of that
(06:29):
mortgage interest deduction isdeductible, especially with
mortgage rates a little highernow than they were a couple
years ago.
That deduction could be morevaluable. And then points.
Points are something that youpay when you obtain a mortgage
loan at the beginning of theloan. They're they're a one
point equals 1% of the loanamount. So if you bought if you
have a mortgage and you, you hadto pay 2 points and the mortgage
(06:53):
is 2 $100,000, you would havepaid $4,000 worth of points at
the beginning of the mortgage.
A lot of times those points arethere either, to get your
mortgage rate lower or it levelsout the risk that the
underwriters have for thatlending that lender, or lendee,
I should say. So but, anyway,mortgage points, mortgage
(07:14):
interest deduction, and propertytax deductions on a year to year
basis are deductible instead ofnondeductible the rent. So
that's a big advantage, John.
John Tripolsky (07:24):
And that's one of one thing too. I I mean, if
I'm if I'm correct, I feel likethose are 2 questions that are
pretty commonly asked, and Idon't think a lot of people miss
those, right, when it comes timefor for tax prep. I I mean, even
some of the yeah. I wouldn't saysome. I believe all of the
softwares out there that I'veever come across, DIY ones, they
(07:45):
ask those questions pretty cutand dry.
Now how much did you how muchwas your mortgage? How much was
your interest? You obviously getthose statements from, from your
mortgage companies. So from yourlender every year, they're
pretty cut and dry. There's nota lot of gray area in that.
And then obviously, propertytaxes. That's a big one.
Chris Picciurro (08:03):
But for traditional mortgage, you're
gonna receive a form 1098 at theend of the year, and that will
report your mortgage interest inpoints. But it also if you have
an escrow account, it'll alsoinclude your property taxes. So
I think you need to be you youneed to be aware of is a lot of
times, those mortgage servicingcompanies can change. So even
though your mortgage is the samemortgage note, you may have more
(08:23):
than 1 servicer. So sometimes asa tax professional, a a client
could submit their mortgagestatement to us, and we're like,
gosh.
Your mortgage interest is halfof what it was last year. Okay,
because the mortgage companychanged, and they will actually
have to dig up that secondstatement by no fault of the
taxpayer. So just having thosedeductions tax, you know, tax
(08:44):
deductible, those expenses taxdeductible is a huge benefit.
Those are the the ones those arethe benefits that most people
know about. Now let's talk abouta couple we'll say 3, but we'll
say 3 benefits that you mightnot know about.
The first in in I'm gonna startwith the one that you from from
(09:05):
basically the most known to theleast known. Okay? So the most
well known extra benefit wouldbe the ability to make energy
efficient improvements to yourhome, which probably add value
and still get a credit, afederal tax credit. Some states
have provided credit, for thatexpenditure. And we know, John,
(09:28):
yes, another plug for anepisode, credit versus tax
deduction.
The difference, a credit is morevaluable in general than a tax
deduction. So you can dosomething in your home that adds
value and you get paid a portionof that cost by from the
government because of you'redoing something that the
(09:49):
government wants you to doeither and and to increase the
energy efficiency and reduce thestrain on the grid. That's
something, John, that you'repretty familiar with.
John Tripolsky (09:56):
Yeah. Yeah. I mean, really and, you know, I
know we're talking about thetax, you know, the tax side of
this, but think about that too.So that's a that's kind of a low
hanging fruit for some people. Ithink if you if you dive into
it, you may actually be reallysurprised on how easy.
I won't say inexpensive, butsome of those home energy
efficiency improvements, are. Soit's kind of a in the that you
(10:18):
went on multiple sides. Right?So you're getting a tax credit
for it, but, obviously, they'reput in place really for you to
save money on some of yourutilities as well. So check that
out.
We got a podcast on there.
Chris Picciurro (10:28):
Yeah. And and there are some now with with
the, new tax laws. There aresome credits available for
renters. It's just not manypeople renting a property are
going to go through the expenseof making an energy efficient
home improvement when they'rewhen they're a renter.
John Tripolsky (10:41):
And and if anybody wants to, I mean, I will
gladly go buy a property and putyou in it because you will Let's
be honest.
Chris Picciurro (10:49):
Be the dream renter.
John Tripolsky (10:50):
Right. They had right. Right.
Chris Picciurro (10:52):
So the other one, the second that that some
people know about, but,actually, it's funny. We just
had someone in, do a, a 1 on 1tax coaching with in our
community that I was workingwith. And one of the few one of
the items they wanted to talkabout was they're very concerned
that they sold their property.They're moving into another
property, and they weren't awareof what we call the section 121
(11:15):
exclusion or the capital gainsexclusion. And I said, how long
have you and your husband andfamily lived in that other
property?
And this person said, I think itwas, like, 8 years. I'm like,
oh, jeez. Have you ever rentedit? No. You're gonna you can
exclude married couple up tohalf a $1,000,000 worth of
capital gains because it wasyour primary residence.
(11:36):
So in general, if something forproperty was your started off as
your primary residence and hasbeen your primary residence for
2 of the last 5 years, anycapital you could exclude a
capital gain up to for notsingle filers, $250,000, and
married filing joint filers,$500,000 of capital gain. So the
(11:57):
the capital gain exclusion isyes. It's nice to get deductions
for the mortgages just forproperty taxes, but the capital
gain exclusion is probably themost valuable dollar wise for,
primary homeownership. So I'llgive you an example real life.
So when when we we moved downhere to Tennessee about 8 years
ago, moving from just outsideDetroit to just outside
(12:20):
Nashville, you know, was alittle bit of an adjustment
market wise.
We have a lot of people fromCalifornia, New York, New
Jersey, Chicago moving here tothe Nashville area over the last
decade, and for them, thehousing prices weren't a sticker
shock like it was for us. Right?But what helped us out a lot was
our property we owned inMichigan. We owned it for about
5 years and appreciated a a nicepercentage. Luckily, we bought
(12:44):
at the right time when the 2010,if you remember, the market was
in the dumper, especially in theDetroit area.
GM and the city of Detroit justwent bankrupt. Sold that in
2016, but my wife and I wereable to exclude our entire
capital gain from that propertyand used that to, you know, as
an additional down payment forthis property here. So point is,
(13:08):
real life example, even thoughyou're paying think about that
mortgage payment, John. You'repaying some to the principal.
You're paying some to interest,but paying down that principal.
Eventually, when you sell theproperty, you're gonna get that
money back. Right? And it couldbe tax free. So section 121
exclusion, we do have a separatepodcast on that. There are a lot
of really you know, noteveryone's situation is cookie
(13:30):
cutter.
Right? Because if you have like,if you rented out a portion of
the property our good friend,Andrew Pulos, who is in our
teaching tax law community, anamazing enrolled agent in in
Atlanta just talking to himabout one of his clients, and I
owned a duplex. And one side wasa primary residence. The other
side was rented out, and and,you know, that's a partial 121
exclusion. So not everyone'scookie cutter, but the point is
(13:53):
if you own a primary residenceand you sell it, most likely,
you're gonna get a full orpartial exclusion from any
capital gain.
Those laws changed, I wanna say,golly, maybe 15, 20 years ago
where you did previously, youhad to buy another property for
at least the value of the oneyou sold. Now you don't have to
do that. You you could've donewhat my wife and I did. We sold
(14:14):
our property in Michigan andrented for a year here. I didn't
have to buy a replacementproperty.
Now some people are like, why?This is a really weird rule.
Remember, remember that taxagencies are your involuntary
business partner. John, how longis the term of someone in the
house of representatives?
John Tripolsky (14:34):
Oh, man. They're gonna stump me on this one. Oh,
I've I've turned off myeverything I know about
politics.
Chris Picciurro (14:39):
That's alright. It's 2
John Tripolsky (14:40):
of the next couple months. 2 years. Okay. I
was gonna I was gonna say 2,but, you know, I know.
Chris Picciurro (14:45):
I know you were. They, usually, you're
putting me on the spot, and I'mI'm I might be giving you the
middle finger, silently. But
Disclaimer (14:52):
You caught
John Tripolsky (14:52):
me on that one. Don't worry. I I was doing it.
Don't worry.
Chris Picciurro (14:54):
You just couldn't see it. So there's no
coincidence that that's thethat's the time frame for the
section 121. Imagine someonelives in, you know, Boise,
Idaho. They get elected to thehouse of representatives. They
go live in Washington DC, buy ahouse there, live there for 2
years, do their term.
They don't get reelected. Theysell their home in Washington.
(15:15):
Guess what? Conveniently, theywon't pay capital gain on that
because they lived there forthose
John Tripolsky (15:19):
2 years.
Chris Picciurro (15:20):
So Sneaky sneaky. Yep. So then we've got
that. So for capital gainexclusion is a huge advantage.
And then the final one is a issomething that you've you've,
made a lot of people in theteaching tax law community aware
of.
The Augusta rule. The Augustarule named after Augusta,
(15:40):
Georgia, home of the, masters.I'm not a golfer, so I had to
actually stretch my brain onthat one. And with that good,
man.
John Tripolsky (15:49):
You get it'll stretch out. You gotta you gotta
take the long drive.
Chris Picciurro (15:52):
So the Augusta rule
John Tripolsky (15:53):
says that
Chris Picciurro (15:53):
a homeowner can rent out their primary residence
for up to 14 days per year andnot report any of the rental
income on their tax return. Sothink about that. Think about
special events. Most big citieshave special events. Now there's
an inconvenience that you haveto evacuate your home, but I you
know, think about the Super Bowlor the, you
John Tripolsky (16:17):
know, like I know. South by Southwest in
Austin.
Chris Picciurro (16:19):
South by South and and I know that the World
Cup's coming to the, theAmericas. Right? So if you live
in an area that and you wannarent your house out for 2 weeks,
yeah, there might be somepartying going on. There might
be some but guess what? If youcan rent your house out for a
couple weeks and pocket 5, 6,maybe $10 per year, that's tax
free.
(16:39):
So especially if you live in,like, Indianapolis area and you
you wanna rent your house outfor the Indy 500, it doesn't
matter. Rent your house out forup to 14 days and absolutely
exclude all of that rentalincome from tax. There are some
special rules for people thatown businesses and rent their
house to their business underthe Augusta rule. It goes beyond
the scope of of this podcast. Ifyou have questions about that,
(17:02):
jump into the jump into our, ourcommunity.
But, yeah, the Augusta rule. Andand I'm telling you, you know,
think about, John, think aboutwhat like, think about the
Daytona 500 or or could even itcould be any especially any any
city that, you know, even thinkabout Northern Michigan. Right?
I mean, during 4th July week orLabor Day week, a lot of people
(17:26):
that live in those smallercommunities, it's fun to be
around, but when you've got 10times amount of people that are
in your community that use thatare usually there, If you live
there, you wanna get out ofthere. You know, CMA Music Fest
here.
I mean, Nashville, we got a inFranklin, specifically, we have
so many events that we could wecould evacuate for. And Yeah.
John Tripolsky (17:44):
Well, I'm gonna wait. I'm and I'm gonna be
leaning on you a little bit forthis one here for a little bit
of forecasting. So we all knowthat you're gonna go pro in
pickleball very soon.
Chris Picciurro (17:56):
Oh, boy. And by
John Tripolsky (17:57):
the way, I'm I'm the one that threw this out
there now. Usually, it's youthat talk about pickleball. So
I'm gonna lean on you to tell mewhere the world championship of
pickleball is gonna be. I'mgonna go buy a place there and
be ready to rent it out. So
Chris Picciurro (18:10):
That's a good that's a good question, Daniel.
I'm far from there.Unfortunately, you know, the
last week or so, I feel like Ihaven't been on my a game. But
the you know, I guess I don'tknow what the world
championship's gonna be. I butbut that's alright, though,
John.
You you know, it's probably itmight not be in the United
(18:31):
States, first of all, so youwouldn't get the Augusta rule.
But but but in all seriousness,I mean, there's a lot of
tournaments in Arizona. Thinkabout spring training, you know,
for for a lot of baseball teamsin Phoenix area and all over
Florida. So there are a lot.John, don't you I mean, you live
(18:51):
outside a certain college townthat I Yeah.
Don't love.
John Tripolsky (18:57):
Your favorite place. That's t. Oh. But I also
You would know you're awolverine.
Chris Picciurro (19:02):
If you live in a college town like Ann Arbor,
Michigan, you you could rentyour house out for the weekend 7
times to people that wannatailgate, that wanna come in for
football games, and pay no taxon that. Not a bad gig.
Beautiful thing.
John Tripolsky (19:19):
No. Not at all. Maybe I'll go buy a farm, start
growing, cucumbers for pickling,and then I'll build a A pickle.
Is a whole this is a whole othertopic. Well yeah.
Yes. But that's and, Chris, ityou know, it all joking aside.
Right? I I think a lot of theseand, again, as I mentioned in
our previous show, really ourour purpose here is to not I
(19:42):
shouldn't say expose. I don'twant to make it sound like
we're, you know, therelationship scandal podcast
here, but really just put it infront of people that these
opportunities do exist.
That really aren't top of mindfor the average taxpayer. They
might think of it as, wow, youknow, great. I can write off my
mortgage interest. And they'reexcited about that because they
(20:04):
didn't know you could even dothat. But so many other things.
So many other things. And as,you know, we talk a lot about in
real estate investing on thatside for our for our REIs, our
real estate investors. You know,that that whole all those
efforts are built around taxstrategy because it's based
around money. Right? Like, it'sthe tree like a business.
It is a business in its sense.Look. So if you plan on owning a
(20:26):
home, there are x opportunities.
Chris Picciurro (20:29):
Well and typically, you know,
communities, no matter what thesocioeconomic landscape is,
typically, communities that havea higher percentage of
homeownership, have a littlemore stability. They you know,
homeownership does createproperty tax revenue. It creates
more, sense of community. And,you know, so there's a lot of
(20:51):
value to a community where whereyou have a high percentage of
homeownership. So, yeah, I mean,that's, you know, though so
that's something to consider.
Now, obviously, you know, if youif you buy and sell a property,
there's some there's some costsassociated with that. So if
you're only gonna be in a homefor a short period of time,
you've gotta factor that out.But in general, a lot of times
(21:12):
we hear people, well, yeah, Iwanna buy a house because
there's some no, it's good fortaxes. If you ever push anyone
on and say, what do you mean?What's how does it help you?
A lot of times they don't know.So if you do that, point them
into this podcast and you'll beand we'll say thank you very
much.
John Tripolsky (21:30):
Absolutely. As I as I mentioned in the last show,
I think I said it as, you know,if if you don't listen to this,
well, we can't be friends. But,you know, maybe what we'll do
is, you know, that we talkedabout the Augusta rule briefly.
Maybe we'll create like theteaching tax flow rule and and
push that along. But really allit would be is based around what
we're doing anyways, helpinglegally and ethically reduce the
taxes you pay in your lifetime.
(21:52):
But thanks, Chris. Thanks forrunning through this man. I'm so
I mean, some of this obviously Iknew about, but it's good to
hear it and kind of see it alllaid out, you know, in in one
space. And in a sense, you kindof create a checklist. You know,
if you're thinking about buyingyour first home, you know, if
you're thinking about, hey,should I get rid of this, move
into a rental, etcetera?
I mean, obviously, a lot offactors play a part of that,
just not how much I can writeoff come tax time. But, again,
(22:16):
go check out some previousepisodes we have. A lot of what
we have talked about even todate, you know, we've been doing
it a while like we talked about,really kinda leads up to this.
So I I'm glad we did this one inthe middle of some other topics
that we that we're planning for.And as always, as I close out,
we will see everybody back here,same time, same place here on
(22:36):
the Teaching Tax Flow podcastnext week.
Hey, everyone. Thanks forhanging out with us here on this
episode talking abouthomeownership and the tax
benefits behind it. So, any morequestions you have, shoot us an
email hello at teaching tax lawdot com, or as always, jump over
(22:59):
to that defeating taxes privateFacebook group. There's your
invite. Just go to defeatingtaxes.com.
It'll send you directly thereand as Chris actually mentioned
in this show, if you have afriend or anybody, family
member, anybody that's beenmaybe they don't know that any
of this exists. Maybe they own ahome. Maybe they don't think it
really does anything for them.Send it to this podcast. Let
(23:21):
them listen to it or evenbetter.
You listened to this podcast,you go to the dinner table, and
you share your knowledge, andyou can take credit for it.
Don't even tell me you heard itfrom us. You take the credit.
You took the time to learn it.That's what we are here for, to
educate and empower you toreduce your taxes and make you
smarter come dinner time withthe family and friends.
(23:42):
So thank you again for joiningus. We will see you very soon
back here on the podcast.
Disclaimer (23:54):
The content provided is for educational purposes
only. We encourage you to seekpersonalized investment advice
from your financialprofessional. For all tax and
legal advice, please consultyour CPA or attorney. Investment
advisory services are offeredthrough Cabin Advisors, a
registered investment adviser.Securities are offered through
Cabin Securities, a registeredbroker dealer.
The content of this podcast doesnot constitute an offer of
(24:16):
securities. Offerings can onlybe made through an offering
memorandum, and you shouldcarefully examine the risk
factors and other informationcontained in the memorandum.
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