Dear Tax Talk,
When’s the best time to buy a home as far as getting the best tax incentives? Should I choose a closing date before or after year-end?
— Roxie

Dear Roxie,
The best time to buy a home is early in the year to maximize your tax deductions. The best way to explain this is by example.

Suppose you’re considering buying a home where your monthly mortgage interest and taxes will be $1,000, your points on the loan are $2,000, and your other itemized deductions, such as state income or sales taxes and charity, are $2,000. If you pay the mortgage for 12 months, your itemized deductions would total $16,000 ($12,000 interest/taxes, $2,000 points and $2,000 other). The standard deduction, which is taken in lieu of itemized deductions, for 2012 is about $12,000 for a married couple and $6,000 for a single filer. If you close in December, you won’t have enough to itemize regardless of filing status, which means you’ll lose deductions — especially, you’ll lose the points deduction.

Another reason: Say you’re single and plan to withdraw $10,000 from your individual retirement account for a first-time home purchase. If you do this in January, you’ll pick up $10,000 in income but offset it with $16,000 in deductions, which will mean you’re ahead in tax deductions by making the purchase. If you do this in December, you’ll be behind on tax deductions.

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