Learning More About Tax Deductions
Once you purchase a home that you love it’s time to pay the closing costs during this time that is also referred to as “the closing.”
The good news is while a good number of closing costs are not tax-deductible, some things do qualify.
For instance, in many states, legal fees, home appraisals, and home inspections are tax-deductible. However, recording fees, title and homeowners insurance, private mortgage insurance, and some lender fees are not deductible.
Keep in mind you are required to prepay some interest -- for instance if you decide to close on a date other than the first or last day of a month. Any pro-rated property tax and points -- one point equals 1 percent of your mortgage -- are usually tax-deductible.
More on Prepaid Interest
All contemporary mortgage loan notes are written and dated as of the first of the month. Unlike rent, usually due in advance for the upcoming month, mortgage loan payments are due on the first of the month and cover the month prior. So, if you close on any day but the first or last day of a month, you will owe the lender a portion of prepaid interest. According to the experts, all interest is tax-deductible just like home inspections are tax-deductible depending on where you are buying the home. Make sure you have done all the things on your checklist including getting a home inspection, home appraisals, etc. before closing.
Speaking of a home inspection, if you have decided you want to sell your home keep in mind home inspections may be tax deductible but aren’t required in New York State. But they are considered a good idea. When you decide to get a home inspection, hire the best and most qualified home inspector, and ask if home inspections are tax-deductible.
What Home Inspections Items Include
A home inspector will typically look at a house's HVAC system, interior plumbing, and electrical systems, roof, attic, floors, windows and doors, foundation, basement, and structural components, then provide a written report with the results of a home inspection. This could be beneficial to you and may be considered a tax dedication depending on location.
What About Property Tax?
Additionally, real estate property taxes are considered deductible. Since you typically pay these taxes in arrears, in some cases, depending on your closing date, you might have some pro-rated property tax payable at the closing. As a result, this expense is deductible, but it is included in your closing costs. Property taxes, like mortgage loan interest, are deductible when you pay them. Depending on the dates of your city, town, or other governmental jurisdiction that requires property tax payments, you may have to pay this tax when you close on the home.
Info About Lender Points
Mortgage lenders charge one or two types of points, and sometimes both. Origination points go straight to the lender to increase their income. Discount points are paid to the mortgage purchaser, typically the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corp. (Freddie Mac), the Veterans Administration (VA), or the Federal Housing Administration (FHA). These points lower your note's interest rate. Points are tax-deductible when they are paid. Even if the seller agrees to pay these points, the buyer can deduct them, but the seller cannot also take these as a deduction.
Remember These IRS Deductible Regulations
A home appraisal or home inspection may be tax-deductible, but credit report, title, legal, and most other expenses are not deemed deductible. Avoid the chance to consider these expenses as points or other tax-deductible items since the IRS has seen this manipulation often and scans for taxpayer attempts to gain benefits of deductibility. Be sure you ask your Realtor, lender, or other professional you are working with to point these things at closing and ask if things like home inspections are tax-deductible.
Home Inspections
Also, take care of your home inspection or home appraisal as soon as possible. Discuss this and other issues to find out if home inspections are tax-deducible with your tax adviser before you purchase a home. Why? because tax rules can change and a major tax modification may enhance or restrict some deductible expenses. This also helps to avoid expecting deductions that do not exist or missing some tax benefits you may not be aware of.
Be Prepared
Make sure you do your homework first in all aspects of the closing including asking if home inspections are tax-deductible and ask what else is tax-deductible in your state, town, or city. This was you will be prepared and not surprised when it's time to close on the house.
Before Signing off
As you get ready to sign on the dotted line and call the moving truck be sure you have asked all the appropriate questions such as are home inspections tax-deductible? Along with other important deductions in order not to make any errors and pay in the long run.
Purchasing a home is one of the most important things you will do in your lifetime so make sure it is done 100 percent correctly so you a relax and enjoy your new home to its fullest.