6 tax myths that will cost you

Some of your commonly held beliefs about tax law may not be based in reality. Find out whether you believe in these taxation fairy tales that may cause you to pay more tax than you actually owe.

By Jeff Schnepper, MSN Money

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VIDEO ON MSN MONEY

7Comments
Feb 26, 2011 12:04AM
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Am I to understand this to say that if I lived in a home for 5 years out of the last 8, ( meaning what I don't know exactly, tho I did live in my last home for 10 years before I sold it in May of 2007 ) prior to buying my next home, ( which is the one I live in & own now ) I would qualify for a $6500. tax credit ?
How much more confusing can tax laws be ?
Seems the only ones I understand are the ones that make me pay more & more in every way possible.
I gave in a few years ago & started using Turbo Tax, so I'm assuming I don't qualify for any tax credit on my home at all. But I still don't understand the wording in this article.

What 8 years is it talking about ? Does it mean the 8 years that this tax credit was in service ? I didn't think it was here that long. Which 8 years ? Is it talking about between 2002 & 2010, since it had to happen before Sept. 2010 ? That's 8 years, isn't it ?
Sheesh !!

Can anybody execute an explanation in plain English for me please ? Cause this article sure makes me feel dumb.
Thanks !!

Mar 31, 2011 4:03PM
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To get the 6500 credit for long time home owners, you must have owned a home which was considered your primary residence for five consecutive years within the last 8 years. If you owned and lived in your home for five years but then decided to rent it out for up to 3 years or sold it and rented a home while looking for a new home, you would still qualify. However, the tax credits are a loan from the gov in which you will be paying it back in 500 increments for the next 13 years.
Feb 8, 2012 2:42PM
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@just4u311: It says it very clearly: " Alternatively, you may qualify for a credit up to $6,500 if you owned and used a home as a principal residence for at least five consecutive years out of the eight-year period ending on the date of the purchase of the new home."
This means that, if you lived in a home for 5 out of the last 8 years prior to the date of the purchase of the new home, you qualify. I don't see how that is confusing wording...
Mar 25, 2012 12:45PM
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I am with you on that! I am also confused on the 8 years window they are talking about.  I bought mine in 2004 but I had lived in my other house for 8 years prior buying a new house in 2004? meaning I bought the first house in 1996 owned and lived there for 8 years then sold and  purchased the second house in 2004? When they first started this first time homebuyer credit I inquired and was told I didn't qualify based on info above mentioned but every year i filed my taxes I wonder if i did qualify back then or just wasting my mind to think about it, can someone please tell me.....

 

Mar 1, 2012 8:21PM
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You have to be careful about using married filing separately status.  If you live in a community property state, all income and itemized deductions have to be split 50-50 so there is no benefit there unless it is deemed separate property like an inheritance and no funds are ever co-mingled.  Then income from the inheritance is only reported to the owner if the couple decides to file MFS.  ie. John earns 30K and Suzy earns 20K, if they file MFS they have to report income each of 25K in community property state.  If Suzy has inherited income property that she keeps separate and generated 2k from it then she reports income of 27k while John reports 25k. 

Feb 8, 2012 3:08PM
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How about the myth that state income taxes are the most important consideration in where to retire.
Mar 31, 2011 3:22PM
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the biggest tax myth out there is that we have to pay a federal income tax.

 

there is NO law on the books anywhere that says the common working american has to pay a federal income tax,,as a matter of fact there is a standing offer open to anyone that can find where the tax code says that we do,,if you can find it they will pay you $50,000

 

the offer has been out there for years and noone (even irs employees)have collected it yet,,because THERE IS NO LAW

 

hows that myth for ya

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