Friends and Clients —
If you bought your first home in 2016, chances are you’re in for a very new tax experience this year.
That’s because for many new homeowners, buying a house is the first time it makes sense to itemize taxes.
The good news is that itemized your taxes is surprisingly easy to do.
Here’s how to make sure you save the most on taxes while minimizing your filing headaches.
First, locate your Settlement Statement. This is a part of your home closing paperwork provided by your lender.
Second, add up the following four main real estate deductions:
- Loan Origination Fees — Your loan origination fee is the upfront fee charged by your lender for processing your loan application. Origination fees usually run about 0.5% to 1% of the loan’s total.
- Mortgage Interest — You can deduct the entire interest portion of your monthly mortgage payments. This will probably be your biggest tax deduction, particularly at the start of your mortgage when interest payments are highest.
- Property Taxes — You can deduct property taxes — but only for the part of the year that you owned the house. Amazingly, you can claim this deduction even if you managed to negotiate with the seller to have them pay the full year’s property taxes.
- Mortgage Insurance — If you’ve put down less that 20%, you probably have to pay for private mortgage insurance. The good news is this item can also be tax deductible — if you qualify. These deductions are phased out over a certain amount of income.
By the way, mortgage insurance is entirely different from homeowners insurance, which isn’t tax deductible.
There are a few other items you might also be able to itemize.
For example, if you gave away furniture or appliances before moving, this can be deducted as a charitable donation. Medical expenses, unreimbursed business expenses, tax preparation fees, and investment expenses are also deductible if you meet certain requirements.
And if you work from home, you can claim additional deduction for that.
Now add up all those deductions
Is the total greater than the standard deduction ($6,300 for an individual, $12,600 for a married couple)?
If it is congratulations, you will save more this year by itemizing your taxes.
By the way, I’ve been talking this whole time about new homeowners.
But even if you haven’y already owned your home for a while but you haven’t been itemizing your taxes yet, you can definitely start doing so.
Points two through four above are recurring deductions, and you can also apply them this tax season.
Also, if you did not buy a house in 2016 but you’re considering doing it this year, make sure you check out all the available listings around Fort Leonard Wood:
Lastly, if you have any questions about your taxes, I strongly recommend talking with an accountant or certified tax professional.