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Housing finances

 

 

 

 

 

 

If your first foray into the real estate market is buying from Trumark Homes, you may make a pleasant discovery. Even though your monthly payments are equal to or greater than your previous monthly rental, you end up with more money at the end of the year. That’s because many of your home ownership expenses are tax-deductible. Here’s a run-down on what you can take off your 1040:

Mortgage Interest

Your interest payment is the biggie because it forms the bulk of your monthly payment during the early years. You can deduct the whole interest amount unless your mortgage balance is over $1 million dollars if you file jointly with a spouse. Other deductible expenses include the penalty charge if you’re late with the amount due and the prepayment penalty, if you decide to pay off your mortgage early. 

Points

Points are certain fees that you pay to obtain your mortgage and are sometimes called origination fees, loan discounts, or maximum loan charges. Generally, higher points mean a lower interest rate, which translates to lower monthly payments. You can generally deduct all the points that you pay, although some limitations apply, which are best detailed by an accountant. If Trumark Homes happens to pay some of your points as part of a promotion, you get to deduct that payment since the IRS treats you as having paid them.

Mortgage Insurance

Mortgage insurance has nothing to do with compensating you. Instead, it protects the lender in case you default on your mortgage. You deduct this insurance in the year they’re charged, unless they apply to periods after the current year. In that case, you must spread out the deduction over your mortgage term or 84 months, whichever is shorter. Limitations apply for insurance provided by the Department of Veterans Affairs. 

Property Taxes

Property taxes are due annually. However, to make it easier on your budget, the lender may divide the amount due into monthly payments that are put into an escrow account. Your lender then pays the tax from the account when due. However you pay them, all your real estate taxes are deductible. 

Business Expenses

Before starting a home business in that spare room, check with the Homeowners Association to see if it’s allowed. Your neighbors likely won’t care if you sell a crocheted sweater or two on Etsy. But they will take an exception to your dream of running an auto body shop from your garage. Assuming its allowed, the home expenses associated with running your enterprise are deductible if that room is your principal place of business. These expenses include part of your utilities and maintenance fees, homeowners insurance, repairs, and depreciation. Just so you get it right, you’d best rely on a tax expert to explain depreciation and other business deductions. Incorrect home business accounting can lead to a stressful IRS audit.

What Isn’t Deductible

Unless related in a direct way to your business, some of your homeowner expenses are not deductible. They include closing costs such as down payments, recording fees, the cost of utilities such as electricity, Homeowner Association dues, fire and comprehensive insurance, and wages for babysitting or domestic help.

If you want more information on buying a home or want to schedule a visit to one of our properties, please contact us