Tax Implications of Navigating Homeownership in an Era of Inflation

Property Tax

Owning property can feel like a roller coaster ride as the real estate landscape fluctuates with economic trends. In the current age of inflation, owning property comes with many different financial nuances. Prospective homeowners face various tax implications when it comes to buying a home.

At Fusion CPA, we understand the importance of helping property owners understand the tax basics to save them money. In this article, we delve into the world of tax considerations for homebuyers and offer insights that can help you navigate this financial decision with confidence.

1. Consider the impact of inflation on property taxes

Property taxes are a vital aspect of homeownership. But, in an inflationary era, property values can experience fluctuations. With valuation, changes come tax changes. This makes it crucial for home buyers to discuss the potential impact of inflation with a CPA. These experts can help you plan for potential increases to ensure that you are not thrown by tax increases as they might arise.

2. Time your property purchases

With inflation, real estate prices might experience fluctuations. Timing your home purchase can help you minimize tax liability. For example, it may be better for your pocket to buy a home when prices are lower due to inflation-driven market shifts. Knowing what to look out for and when the ideal times are to purchase or sell property, can help you save money. Consult with a CPA or tax professional to understand how timing can impact your property tax duty.

3. Capitalize on mortgage interest deductions

The only benefit of taxes is getting to save on taxes.

You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness.

Mortgage interest deductions have been a cornerstone of tax benefits for homeowners. With inflation on the rise, mortgage interest rates may also increase. The good news is that mortgage interest deductions still offer potential tax relief. For many homeowners, deducting mortgage interest payments from their taxable income can translate to significant savings, offsetting the effects of inflation to a certain extent. Consult with your accountant if you need more clarity on what you are allowed to deduct and how this works.

4. Evaluate the capital gains exclusion

The sale of a primary residence often results in capital gains.

If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income. This or up to $500,000 of that gain if you file a joint return with your spouse.

As inflation impacts property values, it is important to consult with a tax professional to understand whether you qualify for capital gains exclusions. For this reason, we advise you to track property appreciation values and inflation rates to help you make informed decisions about future sales.

5. Partner with the experts

Consulting with an expert on when to buy or sell your property can help you save money. Not only do you benefit from relevant insights into tax strategies, capital gains exclusions, deductions, and more; you also get to make informed decisions alongside seasoned experts.

At Fusion CPA, we have years of experience helping our clients manage their property wealth portfolios. Contact us to help you make well-informed decisions that encourage financial growth.

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This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. We base articles on current or proposed tax rules at the time of writing and do not update older posts for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.