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Bankrate's 2008 Tax Guide
Realty/capital gains
Home, sweet home. It's likely your biggest investment and it affords you some great tax breaks to boot.
First-time homebuyers' guide to taxes
First-time homebuyers' guide to taxes
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Most people escrow real estate taxes, says Garwitz. Here you give your lender a portion of your annual property tax bill each month along with your payment of principal and interest on your loan. At closing on a home, lenders usually collect from you, the buyer, a portion of your coming tax bill (around three to six months' worth is typical) for the escrow account.

When your property taxes are due, the lender takes that money and uses it to pay your local tax collector.

In the example above, you cannot write off this amount on your first tax return after purchasing the house, because, even though it's designated for deductible property taxes, the amount was simply collected, not actually paid.

When your lender does pay your property tax bill the next year with that escrowed money, then you'll get to deduct the amount on the returns you file for that tax year.

Financial institutions usually report the amount of property taxes paid on your behalf on the Form 1098. It's a good idea, though, to double-check your actual property tax bill to make sure the correct amount was paid, says Garwitz. The county should send you, the owner, a copy of the bill that it sends to your lender for payment.

6. Timing is everything
Now that you know all the new-home-related deductions you can claim, you've probably already gone to Bankrate's tax form library to download a Schedule A.

Not so fast. With taxes, timing is everything.

While in most cases homeowners will benefit from itemizing, the time of year when you actually closed on your house could make a big difference in your deduction method choice.

"Not everybody should consider itemizing," says attorney Kass, who also writes the weekly "Housing Counsel" column for The Washington Post.

"If you settle later in the year, you'll have very few deductions for mortgage interest and taxes, so it might be better to use the standard deduction amount."

Gronsky says new homebuyers should "run it both ways" to see if, by itemizing their deductions, they will exceed the standard deduction amount.

"Most of the time, when they just purchased the house, because the mortgage payment is mostly interest and very little principal, typically itemizing is better," she says. "But if they got into the house in November, for 2007 taxes it may not be better.

"On the other hand if they got in January or February, itemizing probably will be better."

When calculating your itemized deductions, also be sure to count other nonhousing items. For example, you can now take tax advantage of any charitable contributions you made in the year that you bought your house.

"Young people buying their first home usually don't worry about keeping records of charitable donations because they've been using the standard deduction for years," says Garwitz. "Now they can add those contributions to the deductible costs associated with their new home to come up with a larger itemized deduction amount."

-- Updated Jan. 10, 2008
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