In the rush to file taxes each year, many homeowners are more focused on meeting the deadline than understanding their deductions — especially if it’s their first year as a homeowner. There are many specific home buying tax deductions via Bill Gassett, for all homeowners and first time home buyers.
Now that this year’s tax deadline in April is approaching, you have some time to think, with some tips on fine-tuning your strategy.
Additional Tax Deductions
Many people are not aware of all the additional tax deductions available such as; a home office.
Home renovations that are tax credits for energy efficient upgrades; new doors, windows, furnace…
or Renewable Energy Upgrades which are all outlined in Tax Benefits of Owning A Home via Paul Sian.
Defining Homeowner Tax Deductions
A tax deduction reduces your taxable income so you pay tax on less income. If you own your primary residence, the IRS allows you to deduct mortgage interest and property taxes you paid throughout the year for which you’re filing.
This deduction happens on Schedule A of your IRS tax returns. You then carry this deduction over to the front of your tax return, which is called Form 1040, and subtract the deduction from your gross income to arrive at a new, lower income, which you’re actually taxed on.
Simply put: Being taxed on income that’s been reduced by deductions means you pay less taxes.
Exactly What Can I Deduct As A Homeowner?
Your property taxes are deducted from your income using line 6 of Schedule A, and this can include all property taxes paid during the filing year.
If your mortgage payments include your real estate taxes, you can deduct only the amount your lender actually paid to your county assessor that year (rather than the amount your lender collected from you to pay taxes).
If you bought the home in the year for which you’re filing, your line 6 deduction can also include any pro-rated property taxes you paid on your final closing statement, so keep that statement in your tax files.
Your mortgage interest is deducted from your income using lines 10 and 11 of Schedule A. Line 10 is to deduct mortgage interest paid to your lender, who will send you a 1098 form showing how much mortgage interest you paid them during the tax year. Think of a 1098 like a W2, but instead of showing how much you made, it shows how much mortgage interest you paid. If you refinanced from one lender to another during the year, you’ll get 1098 forms from each of them, and can deduct interest paid on both.
If you bought the home in the year for which you’re filing, your line 10 deduction can also include any pro-rated mortgage interest, “discount” fees, or “origination” fees you paid on your final closing statement, so keep that statement in your tax files, too.
Line 11 is to deduct mortgage interest paid to a private lender that didn’t issue a 1098. In these cases, the IRS requires you to write that recipient’s identifying number and address on the dotted lines next to line 11. If the recipient is an individual, the identifying number is their social security number. If it’s an entity, it’s their employer identification number.
However, many people are not aware of all the Additional Tax Deductions available such as; a home office, home renovations, property tax exemptions for Veterans, costs of selling your home, as well as tax credits for Energy Efficient Upgrades: new furnace, windows, doors… or Renewable Energy Upgrades which are all outlined in Tax Benefits of Owning A Home via Paul Sian.
What does my tax benefit look like after deductions?
Suppose you were a single home buyer earning $90,000 per year and buying a $300,000 home with 20 percent down using a 30 year fixed rate of 3.75 percent.
This would give you a total housing payment of $1,478, which is comprised of $1,111 mortgage payment, $300 property taxes, and $67 insurance. A full year of mortgage interest would be about $9,000, and a full year of property tax would be about $3,600. These two deductions reduce your taxable income by about $12,600.
To quickly calculate your estimated tax savings, you can multiply $12,600 by your estimated tax rate of about 28 percent. The result is $3,528, meaning you’ll pay about this much less in taxes because of your homeowner deductions.
If you convert this to a monthly figure of $294 and subtract it from your total housing payment of $1,478, it reduces your after-tax housing cost to $1,184.
These are only illustrative estimates. You should consult a tax professional for precise figures specific to your situation.
Will mortgage interest deductions be eliminated soon?
Every year, politicians debate the relevance of homeowner tax deductions, to reduce the benefits of the mortgage interest deduction. Although not a major topic in this year’s election, is it something to watch closely and NAR is one of the strongest proponents for ensuring the mortgage interest tax deduction for homeowners. So here is on article about getting ready for tax time. via NAR
Wendy Weir Relocation – Real Estate Agent, Relocation Specialist, Birmingham, MI
Property Taxes: How to Lower Them via Just Close
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