The Petalumahomes.com Realty WebLog

Write-offs. They’re the government’s way of rewarding you when you’ve done something they like. And to judge by the write-offs, the government likes it when you borrow money to buy a house. There are write-offs aplenty, many of which people often forget.

It pays to pay attention—all these write-offs can add up to some serious savings when tax time comes around. Make the most of it—take every break the IRS says you’ve got coming. Here are a few deductions that people often forget:

 Points: Origination fees charged as points are not tax deductible, and your lender is required to provide you with a list of applicable fees in their Good Faith Estimate within three days of your loan application. However discount points are tax deductible in the year that they are paid, for a property that is purchased and is considered the primary residence. These are points paid to secure a lower interest rate. When calculating the tax deduction on a refinance, points paid must be amortized over the life of the loan.

 Pre-payment penalties: Just when you were doing so well, and manage to pay that loan off early, they slap you with a pre-payment penalty. Ouch! Well, if it’s any consolation, you can itemize that away, which should ease the pain.

 Pro-rated real estate taxes: Even if the seller was the one who sent the tax collector the check, chances you paid a pro-rated portion of the taxes for the year at closing. Be sure to deduct your fair share. You may also continue to deduct your property taxes on an annual basis for as long as you own the property.

 Pro-rated mortgage interest: Depending on when in the month you closed on your house, you paid either a hefty or a tiny amount of pro-rated mortgage interest for that month. Big or small, you can write that off. The Final Closing/Settlement Statement will show you how much you’re due.

 Closing Costs: Most general closing cost associated with financing real property are not tax deductible…unfortunately! However, when you sell you home, you may add certain closing costs to the cost basis of your home in order to reduce the amount of taxable capital gains you must pay. These costs include attorney’s fees, recording fees, surveys, title searches, purchase of a title insurance policy, and transfer tax.

 Improvements: As a homeowner, it will be extremely important to save documents and receipts for any improvements made to the home over the course of ownership. Such improvements include room additions, installation of a swimming pool, deck construction, roof replacement, etc. It is important to note, however, that improvements to the home ARE deductible, but repairs are NOT. A tax professional can help decipher the difference between an improvement and a repair.

VERY IMPORTANT: A TAX PROFESSIONAL IS THE BEST RESOURCE FOR ALL TAX RELATED QUESTIONS AND SCENARIOS. IT IS STRONGLY RECOMMENDED THAT YOU SEEK THE ADVICE OF YOUR CPA FOR ADDITIONAL INFORMATION!

Source: Loan Toolbox 2006