San Diego Realtor Kyle Whissel goes over some of the myths and truths about taxes in regards to real estate.

Taxes and Real Estate

How does buying a home in San Diego affect your income taxes? Hey, I'm Kyle Whissel with Whissel Realty Group. And in this video, I want to talk to you a little bit more about how buying a home can help or hurt you when it comes to your income taxes. And now there are really three primary things that I want to focus on in this video. And I want to help kind of clear up some of the myths too. One of the myths is that you get to write off your entire mortgage payments, which is not true.

You do get to write off your mortgage interest but you do not get to write off the principle that you're paying off on that. So when we say principle, let's assume you owed $500,000 and you made a $3,000 payment. You probably had about $500 of that that went to the principal, and $2,500 went to interest. So you reduced the principal balance of the loan by $500. That is not a write-off. Solely, the interest is a write-off. Now think a median price home in San Diego right now is about $800,000.

Let's assume you put 20% down on that. So you got a loan for about $640,000. Your mortgage all in on that is, let's call it four grand. Well, you're talking about a write-off north of $3,000 a month that you're going to have on that home. Multiply that by 12 months you're talking that's a $36,000 deduction when you go to file your income taxes. So let's assume you made $200,000, $36,000 write-off. Now you made $164,000. So that could have a big impact on things. The next thing is property taxes. You can deduct your property taxes up to a certain amount.

As we probably have all heard about SALT, the state and local tax. There's a limitation on how much you can write off but when it comes to your property taxes, a limit of $10,000. So you are going to be able to write that off up to a certain number. So, and when I say all this stuff, make sure to talk to a CPA. I'm not a CPA. I'm just a real estate guy. We just sell houses, do it for 20 years. So just sharing my experience with you. Now, there are a few miscellaneous things that'll come into play that aren't going to be common for everybody but are going to be common for some people. So if you have any medically necessary improvements, those can be written off. General home improvements cannot be written off. So home improvements can only be written off if they were medically necessary. One improvement that can be written off that might not be medically necessary is going to be things like solar electricity, solar water heating, things like that.

There are some energy efficiency tax write-offs. So there are some that are specific here to California. If you're watching this and you're in another state, you'd obviously have to check with your state and see what they have that's allowable where you are at. But there's always going to be something for federal, something for the state. So check that for wherever it is that you live. Now let's get into the really big one. This is the most important part of this whole thing, is the exemption that you get when you sell this home that you purchased. This is one of the few times in your life you get to stick it to Uncle Sam. All of our lives Uncle Sam sticks it to us. We get to stick it back.

And so here's what's great is if you purchase a home here in San Diego or anywhere in the country, when you sell that home, if you are single, you can keep up to $250,000 worth of gain tax-free. Pay $0 tax on that. And if you are married, you get to double that. You get half a million dollars tax-free. So what was great, the last home that I lived in, I bought the home for $800,000. I ended up putting some money into it, sold it for $1.6 million. After we factor in exactly how much my true gain was, the first $500,000 of that I paid $0 in taxes. Think about how massive that is. $500,000 tax-free. Depending on where your income bracket is, you might be 25, 35, here in California 50% tax.

To take down that kind of money tax-free is, I don't whether you want to call it a once-in-a-lifetime opportunity but it's a very infrequently times in a lifetime opportunity. So that's going to be the biggest one. When you sell a property, if you are married, primary residents, $250k, if you're single $250, if you're married $500. That's huge. That is a massive, massive number. And that's one of the best benefits of buying a home. When it comes to tax purposes is, you've watch watched all your friends and you've watched their home values go up and up and up. Well, guess what? You're probably thinking, "Oh yeah when you sell, you're going to get hit with taxes." No, we're not, at least not on the first $250 or $500. So super, super cool. If you want to learn more about these benefits and your particular situation, I've got a great CPA I can connect you with.

Or if you want to get the ball rolling and you're ready to quit paying rent, start making some equity, and the equity you're going to take down tax-free at some point, give us a call, shoot us a text at the number below. That'll connect you with my team. We can learn more about you, your goals, and put a plan in place to help you accomplish them. I'm Kyle Whissel with Whissel Realty Group. Thanks for watching.

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