Make your home purchase now for tax purposes
By Melissa Wirkus
As the year is slowly starting to come
to a close, many people are looking for
ways to get a few extra
tax breaks in.
One of the biggest tax breaks that Americans
can indulge in is buying a home, and taking
out a mortgage.
Mortgage interest is tax deductible, as
well as loan points and various other
things associated with homeownership.
Since we are currently in the midst of
a buyer’s market, with a surplus
of homes on the market and prices continuously
falling, now is a great time to make the
big purchase.
It is best to make a home purchase before
the year’s end in order to reap
in the tax benefits.
An October 13, 2006 article by Elizabeth
Weintraub of About.com, “Closing
a loan before year end could reduce tax
bite,” looks into a few smart strategies
for potential home buyers.
“Once October rolls around, it's
not uncommon to see a lot of people scrambling,
trying to find year-end tax breaks. Fortunately,
for those who file U. S. tax returns,
owning a home can help to significantly
reduce your tax liability.”
“Mortgage
interest, for example, is deductible
from gross income. So are property taxes.
In fact, if you close a real estate transaction
before the end of the year, you will undoubtedly
prepay some interest before your first
payment is due, and that amount is deductible
as well.”
In addition to all of these deductions
you can make just from being a homeowner,
loan points often time become one of the
most confusing things for home owners
to consider, both when applying them to
their mortgage and when dealing with tax
deductions.
“Planning to buy
a new home around year’s end?
Try to wrap things up by Dec. 31. The
reward for meeting that deadline is a
deduction for this year if you have to
finance the purchase with a mortgage loan
on which you pay ‘points.’”
Loan points are additional “up-front”
fees that you pay on a mortgage instead
of paying higher interest rates. Points
also go by the names of “origination
fees,” “premium fees”
or “loan discounts.”
There are a few things that must be understood
about points that qualify as a tax deduction.
“The key to points being 100 percent
deductible in the year of payment, along
with your other home-mortgage interest,
is that you pay the points to obtain a
specific type of loan.”
“It must be a loan to buy, build
or improve (as when you add or remodel
a room) your
main home, that is, your year-round home,
as opposed to, say, a second home that
you use as a vacation retreat or property
for which you charge rent.”
If you meet these few specifications,
you could experience a much better tax
experience when April 15 rolls around.
