What Can You Write Off When Buying a Home?
Writing off home buying costs on your 1040 gives you a little payback come tax time.
tax forms image by Chad McDermott from Fotolia.com
The days of signing on the dotted line and moving into a new place with zero out-of-pocket cash are not part of the current landscape. Lenders require down payments and closing costs, which can take a chunk of your personal savings. However, the Internal Revenue Service lets you write off certain closing expenses when buying a house. These deductions lower your tax liability, but write-offs aren't limited to buying a house. You can also take advantage of deductions that benefit you as a homeowner as long as you own the house.
You will commonly pay mortgage points -- with each point representing 1 percent of the mortgage amount -- either because they are part of the loan charge or because you want to pay money upfront to reduce the mortgage interest rate. These two types of points are known as loan origination points and discount points. The loan origination is
a flat fee charged by lenders to cover the administrative costs of processing a home loan. This fee is typically 1 percent of the purchase price, or one point. For example, if you are buying a $200,000 house, your lender may charge a loan origination fee of $2,000.
Before filing a tax return for the year you bought your house, check your settlement or closing statement to see if you reimbursed the seller for any prepaid property taxes. This sheet describes the real estate transaction and shows the allocation of funds. If you reimbursed the seller at closing for prepaid taxes, you can deduct this amount on your tax return.
A deduction for property taxes continues while you own the house. If you established an escrow account with your mortgage lender, your lender will send you form 1098 at the beginning of each year that states property tax payments during the previous year. If you didn't set up an escrow account but made payments directly to your government entity, keep accurate payment records to claim your deduction.Source: finance.zacks.com