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Tax Deductions for Home Buyers

TAX DEDUCTIONS FOR HOME BUYERS Since consumers do not have to file their annual taxes until April 15, the earlier you gain a better understanding of the tax deductions for home buyers, as well as how to calculate your homeowner tax benefits, the easier you will be able to understand both your costs and the tax implications. Breakdown of Home Ownership Costs PRINCIPAL INTEREST PITI monthly housing cost TAXES & INSURANCE PROPERTY TAXES INSURANCE Assessed by your local government each year based on the value of your home and can be kept in an escrow or impound account by your lender Fee paid to an insurance company of your choosing to help protect you and your lender if the home was impacted by fire or some other covered disaster EXAMPLE: House purchased with the following scenario. $250,000 purchase price 20% down payment 4% fixed interest rate 30 YEAR mortgage PRINCIPAL & INTEREST: $955 PROPERTY TAXES: (average rate of 1.2%) $250 HOMEOWNERS INSURANCE: $66 TOTAL COST: $1,271 Breakdown of Homeowner Tax Benefits BREAKDOWN: Using the mortage costs above to illustrate. $288 principal balance $667 $250 $955 interest per month property taxes mortgage payment ANNUAL INTEREST: $8,000 ANNUAL PROPERTY TAXES: $3,000 TOTAL DEDUCTIBLE COST: $11,000 How Does a Tax Deduction Help You Save Money? Schedule A When you file your taxes each year, there is a form called Schedule A: Itemized Deductions where you get to list anything the Internal Revenue Service (IRS) deems eligible for a deduction. Itemized Deductions SCHEDULE A: ITEMIZED DEDUCTIONS ANNUAL INTEREST: $8,000 ANNUAL PROPERTY TAXES: $3,000 INCOME DEDUCTION: ($8,000 + $3,000) $11,000 W2 INCOME GROSS INCOME: $90,000 INCOME DEDUCTION: $11,000 TAXABLE INCOME: ($90,000 - $11,000) $79,000 TAX SAVINGS TAX PERCENTAGE: (tax level at this income) 28% ANNUAL TAX SAVINGS: ($11,000 x .28) $3,080 MONTHLY TAX SAVINGS: ($3,080 / 12) $257 TOTAL HOUSING COST: ($1,271 - $257) $1,014 Additional Tax Benefits For Home Buyers In addition to your primary tax benefits of deducting mortgage interest and property tax each year, there are other homeowner tax benefits for home buyers to be aware of, such as: DEDUCTING POINTS PAID A point (origination and discount) in real estate terms is essentially 1% of the amount of the new or refinanced loan. POINT DEDUCTION: ($250,000 x .01) $2,500 NEW LOANS REFINANCED NEW The first tax year after the points are paid is when you can take a deduction. The deduction is taken over the life of the mortgage. REFINANCED: (claim 1/30th of the amount paid) $83.33 per year HOME ENERGY CREDITS HOME IMPROVEMENTS Tax credit of up to 30% of the installation cost of geothermal heat pumps and solar/wind energy systems and up to 30% of the cost of residential fuel cells (max of $500 per 0.5 kilowatt of power). When it comes time to sell your property you may be able to roll home improvements into the purchase price, which will help your tax cost basis. HOME EQUITY LOANS DEDUCTING MORTGAGE INSURANCE Interest on a home equity loan is deductible, up to $100,000.The key consideration is whether or not the improvements actually increase the value of your home, provide new uses, or extend the life of the property. A benefit of putting 20% or more down payment on a home is you typically do not need to take out mortgage insurance (exception is FHA loans). Income under $100,000 can take a tax deduction. Income $100,000 to $109,999 get a partial tax break. HOME OFFICE DEDUCTIONS CLERGY & MILITARY HOUSING ALLOWANCES If the space, up to 300 square feet, is regularly and exclusively used for business purposes, it is possible a deduction can be made using the newer simplified method. Housing allowance is not taxable but you can still deduct your mortgage and real estate taxes as mentioned above. Tax Savings When Selling Your Home Did you know the tax savings continue when you sell your home in a few specific areas, capital gains, moving expenses, and costs associated with selling your home. CAPITAL GAINS Real estate capital gains are the profits made in the sale of your home (basically the sales price minus (purchase price plus any improvements made minus (any depreciation))). INDIVIDUALS: UP TO $250,000 COUPLES: UP TO $500,000 CAPITAL GAINS SCENARIO SALES PRICE: $325,000 ORIGINAL PURCHASE PRICE: $250,000 CAPITAL IMPROVEMENTS: $25,000 TAX FREE EXCLUSION: ($325,000 - $275,000) $50,000 If you make a profit above the exclusion amount, that amount would be taxed at the current capital gains tax rate of 20%. MOVING COSTS SELLING COSTS SOLD If you are moving because of a new job, (at least 50 miles further away from your home than your previous job was), you may be entitled to certain moving cost tax deductions. You will need to pass a time test, meaning you have worked 39 weeks for the employer in the past 12 months. If you made repairs to improve your home's marketability within 90 days of the sale of your property, those repairs may be deductible. You are able to deduct mortgage interest, points paid, and real estate property taxes you paid during the closing. Parting Tax Deduction Wisdom Always consult with a tax professional before finalizing your annual tax filings to make sure your homeowner deductions are done properly. The last thing we want is to cheat Uncle Sam out of his share and have the IRS come calling. If unsure who to contact, check with your real estate agent as they often have a handy list of industry professionals available. www.SELLINGWARNERROBINS.COM COLDWELL BANKCR O (478) 960-8055 (C)/ (478) 953-8595 x227 (O) www.COLDWELLBANKERSSK.COM SSK, REALTORS ©Anita Clark Source: for-home-buyers/

Tax Deductions for Home Buyers

shared by anitaclark on Feb 20
Since consumers do not have to file their annual taxes until April 15, the earlier you gain a better understanding of the tax deductions for home buyers, as well as how to calculate your homeowner tax...


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