If you bought your first home in 2016, then you are in for a very new tax experience this year. Why? After you buy a house, it makes sense to itemize your taxes.
The good news is that itemizing your taxes is surprisingly easy to do. There are a few things you need to keep in mind in order to save the most on taxes while minimizing your filing headaches.
First of all, you need to locate your closing disclosure agreement. This is part of your closing paperwork provided by your lender. Then, you can add up the four main real estate deductions:
- Loan costs and fees: These are the different fees from your lender spread throughout the closing disclosure agreement. Different lenders will call them by different names, so look for terms like “application fee,” “underwriting fee,” and “loan cost.
- Mortgage interest: You can deduct the entire interest portion of your mortgage payments. This will probably be your biggest deduction, especially at the start of your mortgage when interest rates are highest.
- Property taxes: You can deduct property taxes for the part of the year in which you owned the home. Amazingly, you can claim this deduction even if you managed to negotiate for the seller to pay the full year’s property taxes.
- Mortgage insurance: If you put less than 20% down when you bought the house, you probably have to pay private mortgage insurance. The good news is that PMI is tax deductible. Keep in mind that private mortgage insurance is completely different from homeowners insurance, which is not deductible.
There are a few other items that you might be able to itemize when filing your taxes. For example, if you gave away furniture or appliances before moving in, those items can be deducted as a charitable donation. If you work from home, then you can claim additional deductions from that.
The standard deduction for individuals is $6,300 while the standard deduction for married couples is $12,600. If your total is less than the standard deduction, then congratulations; you will save more money this year by itemizing your taxes.
Although most of these tips are for new homeowners, other homeowners can also save money by itemizing their taxes. If you have any questions about filing taxes as a homeowner, or if you would like to know more about becoming a homeowner in 2017, give us a call. We would be happy to help you!