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US TAXES

LOSARIPES - 10-7-2008 at 05:26 AM

Does anyone know if money spent on "primary" home construction -in Mexico- expenses can be deducted from taxable US income?
I built my primary and only home in Baja with money mostly from 401K and IRA....

capitolkat - 10-7-2008 at 06:06 AM

You could't deduct any costs of construction in the US primary or not but you can if you have a mortgage. The tax laws don't care where your primary residence is when you are paying the IRS as you have to declare income and deductions just as if you resided in the states. Lots of variables here but for the most part unless the building is a business expense and you have business income to write if off against normal home construction costs don't infer any taxable benefit. if you take funds from a 401(k) that's taxable income and unless it's a Roth IRA the same.

Cajones - 10-7-2008 at 08:11 AM

I would also add that if you have not reached retirement age when you took the money out of your 401K and it was not an emergency, or a few other exceptions in the IRS Code, you will also have a penalty on top of the income tax on the funds withdrawn. You need to talk to a tax accountant.

tripledigitken - 10-7-2008 at 09:00 AM

Quote:

Originally posted by Cajones
I would also add that if you have not reached retirement age when you took the money out of your 401K and it was not an emergency, or a few other exceptions in the IRS Code, you will also have a penalty on top of the income tax on the funds withdrawn. You need to talk to a tax accountant.

Cajones,

Good advice, are you a Tax Professional?

Ken

Not quite sure what you are trying to say

thebajarunner - 10-7-2008 at 09:11 AM

Quote:

Originally posted by capitolkat
You could't deduct any costs of construction in the US primary or not but you can if you have a mortgage. The tax laws don't care where your primary residence is when you are paying the IRS as you have to declare income and deductions just as if you resided in the states. Lots of variables here but for the most part unless the building is a business expense and you have business income to write if off against normal home construction costs don't infer any taxable benefit. if you take funds from a 401(k) that's taxable income and unless it's a Roth IRA the same.

I really don't want to get into dispensing tax advice in this venue....
However, clearly there is never a current tax deduction for construction costs on a personal residence, here, there, anywhere.

Your comment on mortgage is confusing.

What I assume you are trying to say is that interest paid on a mortgage is generally deductible. Any other comment is probably not correct.
(and I say "generally" because a lot of other factors enter in such as possible greater benefit from standard deduction, alt/min, limits on the size of the mortgage,etc)

Better get some professional advice,
and yes, there are limitations on age of taking benefits, but that is generally age 59 and above, not "retirement age" which for a pro athlete may be 29.

Woooosh - 10-7-2008 at 09:14 AM

Is interest income paid on a consturction loan deductible for a house built in Mexico then?

Where would you get one of those?

Dave - 10-7-2008 at 09:32 AM

Quote:

Originally posted by Woooosh
Is interest income paid on a consturction loan deductible for a house built in Mexico then?

I'll take two.

bajarunner

capitolkat - 10-7-2008 at 01:31 PM

yes- mortgage interest is what I was referring to- but that's a pretty basic presumption that most folks who own a home are familiar with so I didn't elaborate. it remains-- construction costs of a residence are not deductible expenses, and withdrawls from a 401(k) are taxable income and may be penalized if taken before 59&1/2 years of age ( some exceptions here but generally not applicable) and same for IRA's except Roth IRA's and
ditto- internet advice on taxes is just about worth what you pay for it-so if it's really important consult a tax professional.

55 limit???

thebajarunner - 10-7-2008 at 10:33 PM

Quote:

Originally posted by CaboRon

Quote:

The 10% penalty stops when you reach age 55 .... you will still have income tax to deal with.

CaboRon

55 must refer to a speed limit somewhere.
It does not have an operative element in taxation that I am familiar with.

bajalou - 10-8-2008 at 07:30 AM

What is a 409K? I haven't heard of it.

thebajarunner - 10-8-2008 at 08:32 AM

nor have I heard of the 55 rule....

59 1/2, yep

55, not sure where that one came from...

Bajajorge - 10-8-2008 at 08:48 AM

Quote:

Originally posted by bajalou
What is a 409K? I haven't heard of it.

It's one day short of retirement. :lol:

LOSARIPES - 10-8-2008 at 10:42 AM

Thanks... I was hoping somebody would come with something I had not heard. It was a calculated move when I decided to build and of course, equity on the property is there to offset the building expenses, taxes and all. I was Just "wishfully asking"... I will have to pay uncle Sam...

LOSARIPES - 10-8-2008 at 10:48 AM

further on the subject........ 59&1/2.... is it exactly 59.5 or the law considers a person 59.5 anytime after 59? I vaguely remember having read/heard that for taxes purposes, one person becomes 59.5 on the following month he/she turns 59....... did I just dream it?..... I have been searching on some IRS publications but no luck. Have not found anything explaining that rule, if it exists.

capitolkat - 10-8-2008 at 11:10 AM

This has been fun-- All thoroughbred race horses are considered to have been born on January 1 of the year of their actual birth-- unfortunately that does not compute for human births. if the IRS had wanted to mean 59 instead of 59.5 don't you think they would have said 59 or the year in which a person reaches 59.5 -- when a statute is clear on it's face it means exactly what it says. Norm

LOSARIPES - 10-9-2008 at 02:09 AM

Darn it!........ what about burros?................. thanks........ I guess I will hurry up and get older.

2 things are certain in life:
Taxes and death....
(don't remember the author)

Thx again

k-rico - 10-9-2008 at 06:30 AM

Quote:

Originally posted by thebajarunner
nor have I heard of the 55 rule....

59 1/2, yep

55, not sure where that one came from...

From the IRS website:

If I retire or laid off before I am 59 1/2, can I withdraw the funds accumulated in a 401(k) plan, without having to pay a 10% penalty? What if I was 55 or older when I separated from service with my employer?

In most cases, if you withdraw funds from your 401(k) plan before you are 59 1/2, you must pay the 10 percent additional tax on early distributions from qualified retirement plans on any amounts that are not rolled into an IRA. However, there are some exceptions listed in Publication 560, Retirement Plans for Small Business, and Publication 575, Pension and Annuity Income. You would not have to pay the 10 percent additional tax, for example, if you received the distribution after you left the company and you left the company during or after the calendar year in which you reached age 55 and your departure from the company qualifies as a separation from service. Tax Topic 412 and Tax Topic 558 are available for further guidance.

http://www.irs.gov/faqs/faq-kw7.html

CaboRon - 10-9-2008 at 07:59 AM

k-rico,

Thankyou for posting that information, I couldn't find the tax code that applies.

I withdrew my earlier posts because people on this site are so in a rush to put down posters when they think they know it all.

And in most cases, they are just arm chair pundits with little or no knowledge of the real world .

They should just stick with their alcoholism .... and accept they may not have all the information.

CaboRon

[Edited on 10-9-2008 by CaboRon]

k-rico - 10-9-2008 at 08:42 AM

de nada CaboRon.

wilderone - 10-9-2008 at 09:40 AM

"... equity on the property is there to offset the building expenses, taxes and all. "
?????
Equity is a theory, ergo, you have a theoretical offset as well - just numbers on paper. I don't understand your rationale.
In Mexico, do you pay property taxes? Just curious.

LOSARIPES - 10-10-2008 at 02:00 AM

equi·ty (ek′wit ē

noun pl. -·ties

1. fairness; impartiality; justice
2. anything that is fair or equitable
3. ☆ the value of property beyond the total amount owed on it in mortgages, liens, etc.

Meant no. 3 above. The value of the property has exceeded the construction costs including associated expenses as permits, but yes, value is just on paper and will not make a bit of difference until it is sold and paid for if I ever sell it.
Property taxes?...Yes, all property (not on fideicomiso) pays property taxes (Impuesto Predial) once a year. You can pay for it quarterly as the year unfolds, but if you pay it all and early, they offer a substantial saving of about 30%.
Back to US taxes,......... thanks for the info.