Sacramento New Homeowner Tax Tip
January 5th, 2009 categories: Real Estate Tips
Hey, congratulations on buying a home or condo this past year.
Do you know what is deductible on your taxes if you are a new homeowner? There were a lot of new home buyers this past year who bought homes in the Sacramento and surrounding areas that may not be aware of some of the homeowner deductions that you can take on you taxes in April.
As a Realtor in the Sacramento and surrounding areas, I send my new homeowners a copy of their HUD1 Settlement Statements which when given to their tax accountant will help to insure that my clients receive all of the possible deductions on their new home or condo purchase.
Here is an explanation of what may be deductible if you purchased a new home or condo this year.
A homeowner can deduct points used to obtain a mortgage loan when buying a home or condo, mortgage interest paid during the year and property taxes.
Are you wondering what points are? When most people buy a home or condo, they generally get a mortgage. Mortgages have costs and one of those costs is the “loan origination fee.” The loan origination fee is usually a percentage of the loan amount, generally referred to as “points.”
For example, one “point” on a $150,000 loan would be $1500. One and a half points on the same loan would be $2250.
On VA and FHA loans, points are often broken down into two categories: loan origination fee (which is usually one point) and discount points (which are also a percentage of the loan balance). Both are deductible.
The loan origination fee must be described as points in order for it to be tax deductible.
Points are deductible in the year they are paid, providing they meet certain conditions. The main conditions are that the home mortgage is secured by the home you live in most of the time and that you used this mortgage to either purchase or build your home.
The cash you put into your down payment must also exceed the amount charged in points. In other words if your points were $3000 but you only had to put in $2000 to close, there is something fishy. Your lender is inflating your loan amount to cover your points. Although a lender can technically do this, you wouldn’t be allowed to deduct the points.
The only other major condition is that the points must be clearly stated on the HUD1 Settlement Statement. This is a document you receive after closing from the Title company that clearly lays out all the costs involved in buying the house or condo. The seller also receives a HUD1.
Sometimes the buyer negotiates for the seller to pay some closing costs, including points. Since the seller pays them and not the buyer, one would assume they could not be deductible, right? WRONG. Just one catch though…either the seller or the buyer can deduct but both parties cannot deduct.
Another deduction is the prorated property taxes that you paid at settlement when you bought the house or condo and the prepaid interest is also deductible.
When you reach a point where you begin itemizing deductions, it is best to have your tax returns prepared by a Certified Public Accountant. Internal Revenue rules and regulations can quickly become confusing. But, at least you can make sure to get all your paperwork in order for the professional to do the best job for you getting as many tax deductions as possible.
Be sure to look for your HUD1 Settlement Statement if you bought a home or condo this past year and take advantage of all your deductions in April. Or ask your Realtor for a copy of the HUD1.
Hope this has helped you prepare for the upcoming tax season. I know…it’s hard to believe that time is approaching! YUCK, but hey you get more tax deductions this year so that’s a “good thing.” Congratulations!
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