Great article over at Bankrate.com entitled, “5 homeownership tax myths”.
Here are the most common misconceptions people have about owning and selling their homes:
1. Mortgage interest will reduce my tax bill.
2. All costs related to my home are deductible.
3. I must use home profits to buy a new home.
4. Putting my children on the deed is tax-smart.
5. If I take a loss on a sale, I can write it off.
Definitely read the article, it’s got some good tips.
Most important tip, and one I hadn’t thought a lot about, is #4 – putting your children on the deed to your home. The idea being, if they are part owners, then they won’t have to go through probate when you die.
Uh-uh. Taking that step can end up being just about the worst thing you could do. As part owners, your children may have to pay a much higher capital gains tax, when they end up selling, because the clock starts ticking on profit, the day they sign the deed. If the children become owners when you die, the clock is “reset”, and their cost basis becomes its appraised value, on the day you die, so profits will be much less. (This means they are much less likely to have to pay any estate tax.)
Read the story for a much better explanation … and consult a tax attorney.
Full story: 5 ownership tax myths – By Kay Bell, Bankrate.com