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Chapter 5 - Home Ownership

Terms in this set (99)

- 1) In the fi rst scenarios, let's say Jeffry fully owns his residence, and occupies that home all year long. Each year, his lender provides a 1098 Form detailing the total interest, discount points and PMI paid in the previous year. If the 1098 Form shows Jeff ry paid $2000, and that amount is less than the value of his home, he can usually deduct the full amount.
- 2) But, what if Jeffry shares an ownership interest? For this example, let's say Jeff ry shares ownership equitably with four other people. Based on the details in the previous example where the annual 1098 statement reflects $2000 in payments, Jeffry can only deduct $400, which is the total divided equally among the five owners. It is possible to structure ownership with diff erent ownership percentages, based on the original purchase contract, or the amount each buyer invests in the purchase and/or property improvements. For example, Jeff ry could own 60% and each of the other four owners own a 10% share.
- 3) Now imagine that Jeffry owns 100% interests in his home and wants to rent out a couple of rooms to earn some extra money or defray costs of ownership. As long as he does not lease any part of his home for purposes other than residential living, and the leased space is not self-contained, meaning it could not be construed as a complete home unit with separate cooking facilities, bathroom and sleeping quarters, Jeffry can treat the rented space as part of his personal home for tax purposes, and claim the full tax benefits based on 1098 figures. One caveat, he is not allowed to lease the same space or diff erent parts of his house to more than two renters at any time during the tax year.