Tax benefits to owner occupancy in California?

[Ronald Hayden]

My business partner and I are evaluating the possibility of purchasing the home that one of us is renting, due to the owner needing cash.

Can anyone provide a pointer/advice on the tax benefits of owner occupancy for a single family home in California? (Especially any potential changes due to recent tax law revisions...)

[Marcy Moyer]

@Ronald Hayden I am not a tax professional, I am a realtor. You should verify everything I say with a tax professional for your particular tax situation.

In general the benefits are:

1. Interest on the loan up to $750,000 is tax deductible. It was previously up to a million dollar loan.

2. You can deduct up to $10,000 from your state income and property tax combined on your Federal Taxes. Previously all of the taxes were deductible.

3. If you both live in the home for 2 years out of 5 you would get a $250,000 capital gains exclusion each. No change from previously.

If you buy the house and use it as rental than all of the mortgage interest and all of the property tax are considered expenses and are deductible. However, the interest rate on the loan would be higher.

When you sell it you could do a 1031 exchange and defer taxes on all of the gain that is reinvested in another property.