Buying or selling a home can be a huge investment for a military family. It can also cause huge headaches when it is time to file taxes! Thankfully, there are also many tax deductions for military homeowners and tax benefits to owning or renting out a home.
In a recent interview, CEO and founder of GoVA, Phil Jawny, shared valuable insights on how military families can optimize their tax strategies in several real estate scenarios. From purchasing homes to selling properties or renting them out, understanding the tax implications can significantly impact financial outcomes for military personnel. Learn about the tax benefits of homeownership so you can maximize your next tax return!
Watch the full interview on our YouTube channel here.
Buying a Home: Tax Deductions for Military Homeowners
For military families who recently purchased a home, taxes are going to look different this year! Phil Jawny underscores the importance of comparing standard deductions versus itemized deductions. While standard deductions offer a baseline reduction in taxable income, itemized deductions present potential benefits for homeowners. These may include closing costs, mortgage interest, and property taxes. By tracking these expenses, homeowners can maximize their deductions, which reduces their tax burden.
Jawny explained, “You’re going to want to look at that settlement statement because all your closing costs are tax-deductible. You’re going to want to also look at how much mortgage interest did I pay last year. Find that on your mortgage year-end tax statement. And the 3rd category is property taxes. If you itemize these deductions and they are greater than your standard deduction, it’s going to save you money and put some of your tax refund right back in your pocket.”
By researching these deductions, military families can potentially increase their tax refunds and save money.
Selling a Home: Capitalizing on Tax-Free Gains
A common occurrence for military families is selling a home due to PCS moves or relocations. If you sold a house during the past year, you may qualify for some tax relief! Jawny highlights a significant advantage for military members selling a home: “you can make a profit on your home sale tax-free up to $250,000 for singles and $500,000 for married couples.” This exemption applies to primary residences, providing a substantial benefit for those using their VA benefits.
Jawny advises military homeowners to consult with tax professionals to ensure compliance with IRS regulations regarding capital gains exemptions. Understanding the eligibility criteria and documentation requirements can help homeowners maximize their tax savings and avoid penalties. By capitalizing on tax-free gains, military families can make the most of their real estate investments.
Renting Out Property: Unlocking Additional Deductions
Another common real estate strategy for military families is “house-hacking.” After living in your home as a primary residence for at least a year, you can then rent it out when moving to the next duty station. This can be a great source of income, especially if you use the VA Loan to purchase your home. Transitioning a property to a rental gives military homeowners additional tax benefits.
Jawny says, “Depreciation, maintenance expenses, property taxes, and mortgage interest are among the deductions available to offset rental income. By documenting these expenses, homeowners can minimize their tax liabilities while building wealth through real estate investments.”
Maintaining accurate records of your rental property expenses and income can streamline your tax process and help you comply with IRS regulations.
A Challenge for Homeowners During PCS Moves
While military families sometimes get a short-term rental before purchasing a home, this can be difficult if you own and rent out your previous property. According to Jawny, military families should avoid short-term rentals between PCS locations, as this can affect your mortgage qualification criteria.
He explains, “If you establish another temporary residency right after you depart your current residence, then the mortgage lender has to qualify the debt of that residence against you. Whereas, if you went directly from one residence to purchasing another residence, the lender could accept the lease agreement to offset that payment so the debt does not qualify against you, which will then increase your eligibility or your affordability for your next purchase.”
Jawny also advises military families to consider the long-term implications of their real estate decisions, such as the impact on future mortgage eligibility and tax benefits. By strategically managing their real estate portfolios, military families can maximize their tax benefits and build wealth over time.
Resources for Military Homebuyers
GoVA offers many financial resources through its digital membership platform, The Edge. From budgeting tools and credit score information to mortgage courses and tax preparation assistance, members of The Edge gain access to invaluable guidance tailored to service members, Veterans, and their spouses. The platform provides personalized assistance for navigating financial decisions.
Jawny encourages military families to take advantage of educational resources and financial literacy programs offered by GoVA. By empowering themselves with knowledge and information, military families can make informed decisions about their real estate investments and tax strategies. With the support of GoVA’s resources, military families can navigate real estate transactions with confidence and achieve their financial goals.
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Empowering Military Families in Real Estate
Navigating real estate transactions during military life can be daunting, particularly during tax season. However, armed with the right knowledge and resources, military families can optimize their tax strategies and capitalize on the benefits of homeownership, property sales, and rental investments. GoVA empowers military members and their families to achieve financial security and prosperity in their real estate endeavors.
