The American Dream is to own your own home. This is an exciting time for you if you are a first time home buyer. Congratulations! You may have decided to buy your new home for many reasons – new addition to the family, better neighborhood, or improvement in your quality of life. Your new home may be sitting on hundreds if not thousands of dollars. How?
Most homes purchased in the United States are financed with home mortgages that carry interest payments that can be deducted on your income tax return each and every year. With your new home mortgage you have the key to unlock valuable tax deductions that will reduce the amount of your hard earned income that is taxed by the US Government and the State. Like the excitement and satisfaction you get when you turn the key in the front door of your new home, you can experience the same excitement and satisfaction knowing you are saving money every day on your income tax.
What many new home buyers do not know is that can take the tax savings from their new home and put more money into their paychecks NOW. When I purchased my house, I saw HUGE tax savings and got a refund of over $10,000 the first year. Then I figured out how I could UNLOCK that $10,000 a year in tax savings and put more moneyu into my take home pay each payday and not wait until the end of the year to get my refund.
Here’s 3 of the biggest tax deductions you can unlock. Your new home may be sitting on hundreds if not thousands of dollars in tax savings that you could be putting put into your paychecks.
The Internal Revenue Code is often used to provide incentives for economic activity. Providing taxpayers a tax deduction for mortgage interest and points paid has long been used as an incentive for sustaining or increasing activity in the home construction market. Purchases of new homes or existing homes. There were nearly 5 million home sales in 2014 with a median home value of $208,000. That’s a lot of economic activity!
Interest paid by you (and/or your spouse) on a home loan for either your primary (principal) or secondary residence is deductible in the year paid as an Itemized Deduction.
This interest is commonly reported to you on either a Form(s) 1098 by your bank or lender and on a HUD1 form when the property is initially purchased or refinanced.
Points are prepaid interest often required by a lender to secure or as a condition of financing. Points paid in the year of initial property acquisition are fully deductible; points paid when refinancing can only be deducted over a period of time equal to the mortgage period. Points paid are commonly reported on the Form 1098 and the HUD1.
The Tax Code can be considered a pay-as-you-go system. This means that income tax is due to the Federal and State (and local, in some cases) Government as income is earned throughout the year. The Internal Revenue Code provides taxpayers protection from being taxed on the same income more than once. Taxpayers are allowed to deduct the amount of State (and local) income tax that they pay during the year as an Itemized Deduction on their Federal income tax return. If amounts deducted are refunded by the State or local government when their annual returns are filed, the refunded State tax may need to be reported as income on the following year’s Federal income tax filing.
Taxes that you pay during the calendar year for State (and local) incomes taxes may be through withholding from paychecks, estimated tax payments or to settle a balance due on a prior year state tax return can be claimed as an Itemized Deduction to reduce income subject to Federal income tax.
If no state income tax was paid during the calendar year, a deduction for sales taxes paid during the calendar year can be claimed instead.
State Income Taxes paid can usually be found on your Form W2 and on last year’s state income tax return. Income taxes are required to be withheld in accordance with either a table or formula that factors gross pay for the work period, frequency that you get paid, the filing status you claim and number of exemptions you claim.
Income taxes withheld from each employee will certainly vary as the relevant factors vary significantly from taxpayer to taxpayer. Employers withhold income taxes from their employees and deposit them with the State (or local) tax authority in each taxpayer’s account.
Home owners like yourself, as well as the owners of other private real estate in your community – shopping centers, apartment complexes, factories – are assessed real estate property taxes to provide funds necessary to support functions that benefit the community at large.
Taxes are assessed on your new home, by local governments based on a formula levying a tax amount for public schools, local infrastructure and other approved common services. Typically, real estate taxes are based on periodic valuations of real property by the local government and the amount of tax is approved by elected representatives each year. Real estate taxes support functions like police and fire protection for your home and your neighbors’, public schools, public utilities, street maintenance, and local government expenses.
Real estate taxes are assessed by the local government to be equal across the same classes of real estate. Your new home, for example, will have the same rate assessed as similar homes in your community. Factories will have the same rates assessed as other factories in the community, etc.
Real estate taxes are typically paid in arrears – tax paid in the current period is for last year. Real estate taxes are paid either annually or semi-annually and many homeowners have an amount added to the monthly mortgage payment to be set aside in an escrow account to accumulate to the amount of real estate taxes that will be due in the next period.
While your principal and interest payment should remain fixed, your monthly mortgage payment is often adjusted each year to account for changes in the cost of insurance or taxes being paid by the lender on your behalf out of escrow.
Real estate taxes paid can be identified either from a Form 1098 from your bank or from your local government property tax invoice/office.
What most new home owners don’t know is that you can unlock those savings TODAY – without waiting to file your income tax return next spring. You can put the dollars your new home saves you in tax deductions into your paychecks NOW without waiting for your tax refund next spring. The IRS collected $274 Billion from over 101 Million taxpayers last year and refunded that money only after people filed their income tax returns. If you wait until you file your tax return to unlock the tax deductions your new home qualifies you is like giving the IRS a loan – at ZERO per cent interest.
Jeff Randall shares in his eBook Give Yourself a Raise : 7 Tax Deductions Every New Home Owner Can Unlock to Put More $$$ in Each Paycheck how you can use your new home to lower your income tax this year AND how you can take those savings now and put more money into your next take home paycheck.
Jeff Randall coaches individuals, couples and entrepreneurs on money management based on Biblical principles, and personal and business tax strategies. He is an Enrolled Agent licensed to practice before the Internal Revenue Service. He provides representation services to individuals, couples and businesses to resolve back tax issues. His Refund Planning and Prescription (RP Rx) process helps hundreds of clients across the US and in 16 countries put the most money into each paycheck and not owe tax at the end of the year when they file their income tax returns.
Jeff is founder and Principal Advisor of Tax Break http://www.taxbreak.tax. He is the author of numerous tax and entrepreneur advisory resources and host The Tax Break Radio Show. Click Let’s Talk to send questions or feedback..