Income taxes after ownership—Home buyer guide to maximum deductions

Tips for homeowners preparing taxes for maximum tax deductions


Written by: Elizabeth Porter

Tax time is here!  If you bought a home before December 31, 2011 there are several opportunities to maximize deductions and get money back when you file your taxes.

The difference for homeowners doing their taxes for the first time compared to when they were renters is usually claiming an “itemized deduction” versus the “standard” deduction.

A tax professional can always give you the best advice but here are a few pointers to get you started.



From your mortgage company—You will get a summary statement call “Form 1098” showing you how much mortgage

interest you paid during the year.  You usually get to deduct 100% of your mortgage interest and since the first five to seven years are mostly interest, this can add up to be a big savings.

Don’t stop there!  If you paid mortgage insurance (put down little or no down payment with your mortgage) and make less than $100,000 annually, you may also be able to deduct the mortgage insurance costs, further adding to your tax savings.  This amount is built-in to your monthly payment and will usually automatically be removed after a specific time-frame or once you lower your loan-to-value.

From the property appraiser—In addition to mortgage interest, the property taxes you pay each year are usually tax deductible.  Most homeowners will have this amount escrowed (added right to their mortgage) so that a little is taken out each month towards the year-end tax bill.  Your year-end summary from your lender is likely to show the property tax amount paid on your behalf, but your property tax records will also have the amount.

Don’t forget to file that homestead exemption!  You may be eligible for tax savings on your primary residence if you live in your new home full-time.  Check with your state to verify dates and eligibility requirements.

In Florida for example, homestead exemption qualification forms are due March 1 and offer full-time residents a $50,000 reduction in their tax liability.  So, if your home is valued at $150,000 and you live out of state and just use the home as a vacation home, you are taxed on the full amount of $150,000. If you live in that same home full-time, you may be eligible for a $50,000 reduction, leaving you with being taxed on just $100,000.

Here is a sample homestead exemption for that is used in Florida



Check your closing paperwork—At closing, you signed a HUD-1 form detailing your sales price and costs associated with your purchase and closing.  The HUD-1 could be a hidden source for even more money towards your deductions.

In the loan section (see sample HUD-1) look to see if you paid any “origination fees.”  Any origination fees that you paid to the mortgage company could be tax deductible.

Did you do a buy down?  A buy-down is when you pay up-front money to permanently reduce your mortgage interest rate.  If you elected to pay “points” to lower your interest rate, you may be able to deduct them on your taxes.  There are a few stipulations on deducting your points so be sure to speak to your tax preparer.

More things to think about

As home prices increase, capital gains will become a common expectation.  Capital gains explained simply is the amount of money made higher than the amount you paid (made a profit) when you sell your home.  If you have owned the property for two years and lived in it for two out of the last five years, you may be eligible for tax-free savings on your capital gain.

Check your payroll deductions  Your tax professional can give you advice on taking a look at your payroll deductions.  You may be able to adjust the amounts you have withheld now that you are a homeowner.

Ready to see how much you might be able to save after buying your first home?

{rokbox text=|Here is a sample worksheet you can print to compare savings when renting versus owning| size=|906 700|}images/blog/rent vs own potential tax savings 032012.pdf{/rokbox}.

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