Michael’s Advice for Millennial Homebuyers
Of the many confusing experiences to navigate when saving for a home, buying a home, or selling a home, understanding the tax implications is certainly near the top. If you’re entering the housing market for the first time or thinking of starting to save for a home through various investments, being educated on the tax landscape is crucial for your success. Redfin reached out to our very own Michael Lotito for his best tax advice for millennial homebuyers: read what he had to say below!
Michael Lotito, CPA, Lotito & Lazzara, PC: Most of the millennial homebuyers will not be in houses large enough to benefit from itemizing their deductions due to the increase in the standard deduction with the new tax law passed last year. Therefore my tip for first-time homebuyers would be to keep track of their basis in their property.
A lot of first-time homebuyers want to buy a ‘fixer-upper’ that they live in and improve over time to increase the value of their property. This is because it’s generally a starter home, not a forever home, and since houses cost a lot of money, it is considered an investment. Millennials should keep their receipts associated with any home improvements because these costs are added to the tax basis of the property. When the house is sold, the assumption that the IRS makes is proceeds minus cost basis (because these are reportable numbers) in order to determine the gain, but actually any money spent improving the property will increase that basis and reduce the gain on the property. The receipts are proof if the figure is ever scrutinized. This is especially important if the homeowner sells before they’ve lived in the house for two years, since they would not qualify for the primary residence exclusion.