Help: Tax Deductions on a House Mortgage?

Question

Here is my situation: I just bought a house July 31st of 2006. This is my first home purchase. I would like to adjust my taxes withheld with my employer to optimize cashflow. I bought my house at roughly $200,000. I make $70,000 per year. How do I change my taxes withheld to optimize my cash flow situation per month. I'm poor now! Please help tax gurus.

Answer 1

The best thing to do is do your 2006 tax return now....on paper. Fill it out with the income you expect for the entire year, the deductions you expect for the entire year, etc. Use your last paycheck for best estimates. If you normally don't do your own tax return, you may want someone else to help you out. If you've never done a Schedule A before, you may need to do some research to figure out what goes on it. Ultimately, if you use good estimates, you can figure out what your tax liability will be. The 2006 tax tables are already available. Since you know what you've given to the IRS already (from your last paycheck), and you know what you will ultimately owe, you can figure out how much you need to withhold each payperiod from now until the end of the year. Adjust your W-4 accordingly. Keep in mind that you don't have to withhold your entire tax liability. You can owe the IRS $1000 and not have to pay any penalties. You can also withhold 100% of last year's tax liability and owe no penalties. You'll still have to pay the IRS what you owe them, but no penalties will be added on. That way, you'll get as large a check as possible now. This is how I figure out what to put on my W-4 every year. I do mini-tax returns for the current year all year long and adjust accordingly. I have unusual income from the sale of stock and stuff that makes it more interesting, but as long as you know what is income and what are deductions, exemptions, credits, etc., you can make a very close estimate.

Good luck!

Answer 2

As with most tax questions, it depends. You can go here http://www.irs.gov/pub/irs-pdf/f1040es.pdf and estimate what your taxes will be. Note that line 13c is what your actual tax is estimated to be. The amount on line 14c is the minimum you should have withheld (or paid to IRS) in order to avoid a penalty. If you have been using the standard deduction, note that the sum of all your itemized deductions will need to total more than $5100 (single) to make it worthwhile to itemize. Buying a house gives you deductions for the mortgage interest and real estate taxes (and some other costs for the year you buy the house). To have less money withheld, you can have your company submit a new W-4 with more dependents than you have listed now. To avoid owing the IRS more at tax time, I would be very cautious about increasing the number of dependents listed on your W-4, especially if you had to pay the IRS when you filed last year.

Answer 3

It's not a good idea to fuss with your withholdings in the year of the purchase. It's not unusual that you won't have enough in deductions by the end of the year to warrant itemizing. See how this year goes, and then calculate your likely 2007 deductions after you've filed your taxes for 2006 and then adjust your exemptions accordingly.

Answer 4

I agree with Bostonian. Don't assume that you are going to get a tax windfall since you only have one half a year of mortgage interest and taxes. See how much, if any, you get back from this years return and then make your decision.

Answer 5

best to use the generator on irs.gov to figure what the start point would be, that uses typical taxpayer numbers. Then you can go from that to est how much more you can claim as dep (married 4, 5 etc.)

Answer 6

Go to your employer (HR) and ask to change the exemption to anywhere between 5 and 10. If you are only claiming 1 right now and if you have owed IRS money last year after filing, I wouldn't go over 6. If you are claiming 2 or 3 and always get money back after filing, you can go a little higher.