First-time homebuyers' guide to
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And remember those points you paid?
If you find that you can't itemize for the year you bought your
home, you can take Garwitz's advice and amortize them.
You'll simply spread the points over the life of
the loan and deduct the appropriate amount in each future year you
itemize your deductions.
If you have a 30-year mortgage, that $3,000 in points,
in the example cited earlier, would give you $100 to deduct each
tax year that you itemize.
7. Other deductions, thanks to
Some new homeowners also might elect to take out a small home equity
loan or line of credit in connection with their new residences.
While going into more debt that is tied to your residence is a personal
financial decision that you must consider carefully, if you do get
such credit, at least be sure to take advantage of its tax breaks.
Interest on a home equity line
or loan of up to $100,000 is deductible. It doesn't matter if you
used the money to buy furniture for your new house, upgraded the
kitchen in your fixer-upper or purchased a car. As long as the loan
is secured by your residence, its interest is deductible.
Did you buy the house after moving
to take a job? Then you also might be able to write off some relocation
expenses. "If the move was either to start a new job or your
current office relocated you to a new location more than 50 miles
from your old job," says Gronsky, "some of those expenses
might be deductible."
Alternatively, if you are self-employed
and working out of your house, home office deductions might apply.
And if you make any improvements
to your home to alleviate a medical condition, such as the installation
of a ramp or central air conditioning to alleviate allergies or
asthma, says Gronsky, these also might help boost your itemized
8. What's not deductible
But don't get carried away with writing off any and everything connected
to your home.
you'll see listed on your
HUD-1, such as appraisal charges,
title insurance, credit report
fees, and state and local
taxes (as some states call
them), are not deductible
on your federal tax return,
Wait a minute. Recordation taxes? Aren't taxes connected
with your home deductible? Yes, as long as they are real estate
taxes. Recordation taxes or stamp taxes or whatever name your region
gives them are basically administrative fees connected with your
purchase and are not deductible.
Neither is private
mortgage insurance that your
lender might have required
you to purchase -- unless
you took out the loan (or
refinanced) on or after Jan. 1,
2007, when a new law took effect which enables some homeowners to
Homeowners association fees are
not deductible, however.
"That's simply a personal
cost you'll have to absorb," says Garwitz. "The
one exception to that is if your homeowners association pays some
property taxes for common areas.
"You can deduct your pro rata
portion of those taxes," he says. "It's usually not very much, might be only
$50, but hey, I want every buck!"
9. Not federal,
You also need to pay attention to some more local tax matters connected
to your home.
Property-tax exemptions, for example,
could help lower your annual property tax bill. While this will
mean less to deduct when you file your annual federal tax return,
that's usually a trade-off homeowners will gladly make in order
to have more money in their personal accounts the rest of the year.
Updated: Jan. 10, 2008