First-time homebuyers' guide to taxes
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4. Points pay off at tax time
Your HUD-1, and probably the 1098 you'll get from your lender, will
list any points you paid for your mortgage. A point is 1 percent of your loan amount.
Buyers sometimes choose to pay points to obtain a lower interest
The IRS allows you to deduct points for the tax year
in which you purchase the home. You include the points paid in the
same section of Schedule A where you claim your mortgage interest.
"For a purchase of a principal residence, you
can choose to amortize or deduct the points all at once," says
Gary Garwitz, CPA and partner at BKD
LLP in Springfield, Mo. "Most people, and usually first-time
buyers, are going to fall into the category of claiming it all at
This means if you paid 1.5 points on a $200,000 home
loan, that $3,000 will go directly toward your itemized deduction
You'll find points on lines 801 and 802 of the HUD-1,
says Gronsky. But don't be concerned if you don't see the term "points"
on the settlement sheet.
could be called 'loan origination
fee,' 'loan discount fees'
or 'points,'" says Kass.
"The name is not important.
What is important for most
loans is they are fully deductible
by the new homebuyers as
long as they are reasonable
and consistent in the area
where you bought the home."
The tax law requirement that points be in line with
your real estate market is yet one more reason to avoid lenders
who charge exorbitant amounts. "Ten points is probably not
consistent or reasonable anywhere," says Kass, "but some
loan sharks are charging that."
Another nice tax feature of points: Even if the seller
paid them, the buyer generally gets to claim the deduction.
5. The tax-deduction
value of property taxes
The third major home-related tax deduction is real estate taxes.
This can get complicated, depending on when you bought
your house and your jurisdiction's tax year.
For example, your tax year runs January through December
and you buy July 1. Taxes are due in March, says Kass.
"When you closed on your home, the seller had
already prepaid taxes in March for the full year," he says.
"So at closing, the buyer would reimburse the seller for the
amount from July 1 to Dec. 31. That amount the buyer reimbursed
will be shown on the HUD-1 and the buyer can deduct that for income
But there might be other taxes shown on the
HUD-1 that aren't immediately deductible.