Tax Deductions for New Home Owners

Tax Deductions for New Home Owners
  • Opening Intro -

    You’ve just closed on your new home and have expended thousands of dollars in closing costs and other fees.

    The joy of home ownership can easily be tempered by the expenses incurred before, during and after closing, leaving you wondering what you can deduct in taxes after buying a house.

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The federal government has provided a number of tax deductions you can take the next time that you file your tax return and in subsequent years.

Points

— Some mortgage arrangements require home buyers to pay for points to reduce the loan’s interest rate. For example, if your mortgage is $250,000 and you paid one point, then you can deduct the $2,500 you paid to close on the house over the life of your loan. You can also deduct points if the buyer covered these costs for you, according to Kiplinger.

Real Estate Taxes

— Property taxes can offer a significant deduction on your federal tax return, including those taxes you paid at closing. When you file your initial tax return following the purchase of your home, you can deduct those real estate taxes paid to your local government that first and in subsequent years as well as taxes paid at closing.

Mortgage Interest

— Unless you paid cash for your home, you have a monthly mortgage payment that includes principal and interest. The principal part you pay is not deductible on your federal income taxes, but your interest payments are. In the earlier years of your mortgage, most of your mortgage payments go toward making interest payments, which means the amount you can deduct from your taxes early on will be larger than in subsequent years. If you paid $600 or more in interest payments in any calendar year, then you should receive Form 1098 or a similar statement from your mortgage provider.

IRA Break

— Take money from your 401(k) retirement account before age 59 1/2 and you’ll be hit with a 10-percent tax penalty even if you use that money to make a down payment on your first home. However, if you have an IRA account, you can withdraw up to $10,000 to be used toward your down payment without penalty, reports Bankrate. Under very limited circumstances you may be able to take money from a 401(k) account without penalty, but not if there is a loan provision included with your plan. In that case you must borrow from your account as a hardship typically covers medical and funeral expenses only. Use IRS Form 5329 to reflect your distribution.

There may also be deductions applicable to your case or to the state where you live. Consult with a tax adviser to ensure that every deduction available to you can be taken.

 
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Last update on 2019-06-03 / Affiliate links / Images from Amazon Product Advertising API

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Categories: Tax Tips