Buying a home comes with a great feeling as the buyer starts a new chapter in life. Some buyers will see it as they’ve arrived but do not forget, homeownership is a huge financial responsibility and sometimes the biggest for some people will ever have. Apart from mortgage payments, you’ll need to run insurance, maintenance cost, property taxes, and others. The federal government clearly understands homeownership, and the tax law has created several ways a home ownership costs can cut your taxes.
Some home expenses can be deductible if handled the right way and if you itemize deductions. You should consider using schedule A for your itemization to claim your mortgage interest deduction and your mortgage must be secured by your first or second home. The said home to be qualified for tax deduction could be a house, boat or trailer, so far as you can cook in it, sleep in it and use it as a toilet.
Handling the property tax deduction:
- Find your tax record: You can get this from your local taxing authority that will provide a copy of your home’s tax bill and you should as well consider scrutinizing registration paperwork on your car, boat, RV or other movable assets. Those might come with some property taxes and the portion based on the vehicle’s value is likely deductible.
- Exclude unwanted stuff: A property tax can only be deducted if it’s assessed uniformly at a rate of similar properties in the neighborhood. This proceeds will be used to help the community not pay for your special services. There are sometimes assessments made by the county for improvements, such assessments are not deductible as they’re not classified as taxes.
- Use schedule A when filing your return: This where you figure your deduction. This implies you’ll have to itemize your taxes instead of using the standard deduction. Itemizing will often take more time to do your taxes and you might just end up having a lower tax bill.
- Make property tax deduction on yearly basis: There are two available ways you can pay your taxes, either you set aside a standard budget for monthly payments in an escrow account when the mortgage is paid or you just write a check once or twice when the bill comes. Don’t be fooled by the first system, taxes are only deductible when using the second system.
Keep in mind that you should contact your tax accountant before taking any actions. Any questions? We are here to help, so contact us today!