What tax deductions will I have after I buy a house?


tax deductionsOur Federal Government knows that a community with more homeowners is more stable than one with renters. As a result, it offers the following tax incentives to those who become homeowners.

  • Mortgage insurance is deductible but this may change (also depends on your income & loan amount)
  • Property Taxes (typically this is several thousand dollars/year)
  • If you are having a home built, the interest on the construction loan is deductible
  • “Prepaid interest” which is a closing cost (for interest from the day you close til the end of that month)
  • Points” which are a charge to get your loan, may or may not be deductible (lots of rules on this one)
  • Interest you pay every month  (this is the largest portion of your mortgage payment)

The    following expenses are not deductible:

  • Principal you pay on your mortgage
  • Utilities like water, sewer, garbage, etc.
  • Homeowners Association Dues for a neighborhood or condo complex
  • Homeowner’s insurance premiums.

How much do your deductions save you in taxes? Let’s look at an example.  For your first year on a $150,000 mortgage you could have these deductions:

  • About $8200 in interest payments to write off
  • $1500 to $3000 in property taxes (depending on local tax rates)
  • $340 in prepaid interest
  • $750 of mortgage insurance

That’s a total of $10,800 to $12,000! With a household income of $60,000, that would lower your taxable income to less than $50,000, saving you $2750 on your tax bill. That translates to a savings of over $230 a month for buying a home!

Always discuss tax info with your tax advisor before making any decisions.

“Tax deductions,” also called “write-off’s,”  mean you subtract that amount from your income before calculating how much you owe in taxes.  A “Tax Credit” is even better because you get that amount taken directly off your tax bill or in a refund.

 


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