Future Tax Strategy on Buying a Home:

 

The Future Tax Strategy Advisors will help you prepare for the changes that buying a home brings to your tax situation.

 

I.                     Your Settlement Statement:

A.     The Settlement Statement that you receive after purchasing a home contains additional tax deductions such as:

                                                               i.      Real property taxes paid (or credited) in escrow.  These taxes may be included on your impound account’s year-end statement. Make sure you include them on your tax return the following year.

                                                             ii.      Mortgage interest paid in escrow. Check the Form 1098 you receive from your mortgage company to make sure that the amount of interest paid in escrow is included on your Form 1098. Form 1098 reports your mortgage interest payments and generally includes the property tax you paid on your home. Expect to receive your form in late January.

                                                            iii.      Points, or loan origination costs, paid to your mortgage company are deductible the year you buy your home.

II.                   Documents You Should Save for Your Records

A.     Settlement statement that contains the following:

                                                               i.      The purchase price of your home

                                                             ii.      The closing costs that you paid on your home, such as recording fees. These costs are added to the purchase price of your home.

                                                            iii.      Other costs that don’t get added to the purchase price of your home such as points, interest, and real property taxes paid or credited.

B. Keep receipts and cancelled checks for improvements made to your home. Improvements such as new flooring, a security system, or a room addition increase the purchase price, or cost basis, of your home.

III.                  Other Tax Tips and Savings

A.     Usually, mortgage interest and property taxes on your new home will push your deductible expenses higher than the standard deduction and allow you to take advantage of the benefits of itemizing deductions.

                                                               i.      If you buy your home later in the year, you may not be able to itemize your deductions until the following year. If you can’t itemize deductions in 2004, it may be best to delay payments for deductible expenses, such as charitable contributions, until 2005.

                                                             ii.      Save receipts for other common itemized expenses, such as property taxes, DMV fees, charitable contributions, and other miscellaneous deductible expenses.

B.     Using early distributions form IRA’s as a down payment:

                                                               i.      You can take distributions of up to $10,000 from your IRA to purchase your new home.

                                                             ii.      Under this rule you are not penalized for early distribution.

                                                            iii.      To qualify, you can not have owned a home for the last two years.

C.     Moving Expenses:

                                                               i.      If you are moving because you either switched jobs or were relocated, you may be able to deduct your moving expenses. Be sure to save your receipts for transportation, storage, etc.

D.     Using your home for business:

                                                               i.      If you use an area of your home exclusively for business, you can take certain home expenses such as depreciation on your home and the cost of utilities and other expenses as a home office deduction. Keep your receipts for expenses such as utilities, cleaning, repairs, and insurance.

E.     Seller Financed Mortgage:

                                                               i.      Report any interest that you pay to the seller. You will need to have the seller’s name, address, and social security to enter on your tax return.

                                                             ii.      The seller may then also ask you for your social security number to report the mortgage interest that you paid.

F.      Mortgage Interest Credit for Low-Income Buyers:

                                                               i.      Contact the appropriate government agency (i.e.state or local) about getting an MCC (Mortgage Credit Certificate) before you buy your home This credit allows you additional tax benefits for buying a home.