How do Taxes Change for First-Time Homeowners?
You've turned your key in the door and taken the first look around as a full-fledged homeowner. Congrats! One foot in the door, and you're in paint sample heaven, and you've gotten pretty deep into this DIY firepit situation as well. The last thing you want to think about is homeowner taxes, right? Well, good news/bad news: Your new home comes with some great tax perks, but you need to start planning now for next year's filing. Here's a sampling of what's available to new home owners and how you can take advantage.
A Slew of New Deductions and Credits
Buying your first home is a life event that comes with a whole lot of deduction possibilities. One deduction will change starting in 2018, but the rest are tried-and-true deductions that add up to serious savings. When you are filing taxes a home owner you can deduct:
Mortgage interest. Yes, the interest on your monthly payment is deductible. In 2017 and prior, you could deduct interest on mortgage debt up to $1 million, but as of 2018 filings, that figure has been reduced to $750,000.
Mortgage points. If you brought your mortgage interest rate down by a point or two, you can deduct that cost from your first tax filing after your purchase.
Property taxes. You can deduct your full real estate taxes on your annual taxes.
Mortgage insurance payments. If your down payment was less than 20%, you're probably paying mortgage insurance every month. Nobody likes paying it, but at least it's deductible!
Home office space. If you work from home, you can deduct the square footage where you conduct business on your taxes.
Credit for certain home repairs. If you upgrade your home to become more energy efficient, you may be able to deduct some of the costs.
Waived IRA fees. While it's not exactly a credit, if you dip into your IRA to make a home down payment, the IRS will waive the 10% penalty for removing money early. You can take up to $10,000.
Various itemization benefits. Before you bought a home, you may have taken the standard deduction. With enough reason to itemize, your eligible for all sorts of deductions, such as charitable donations.
MYMOVE recommends consulting an accounting professional before claiming any tax deductions.
Avoid Surprises by Planning Now
Do yourself a favor by planning your taxes ahead. If you're not aware of which documents you'll need, it's better to consult a CPA early! Here are some other tips:
Make checklist of mortgage-related payments. Make a list and check it twice – your mortgage lender will send you necessary tax documents, but know what you're looking for in the mail.
--Keep receipts for home improvements or donations. When in doubt, save all receipts related to everything from charitable donations to home office purchases.
File early in case your accountant needs more information from you.
Buying a house is fun, and believe it or not – filing your taxes can be too! Take advantage of those tax deductions and you can afford that big screen after all.