What are the tax advantages I'll receive for buying a home this year?

Question

My closing date is Dec. 28th. Will I receive any tax benefits when I file this year? If I have to wait until next year, what benefits will I receive then, besides the interest being tax deductible?

Answer 1

You'll be able to itemize any mortgage points and closing costs that you paid in 2006 on a schedule A deduction. In 2007 you'll be able itemize the mortgage interest and property taxes paid. Mortgage interest will be a significant deduction for the first several years.

Answer 2

Probably not much advantage if any for 2006.

When you own a home, mortgate interest and property taxes are allowable itemized deductions for the year in which they're paid. If your total deductions exceed the standard deduction that everyone is allowed automatically, then you would itemize (Schedule A) and would take your total itemized deductions instead of the standard deduction - the amount by which the itemized deductions are higher than the standard saves you taxes at whatever your marginal tax rate (bracket) is.

Closing this late in the year, you probably won't have enough to be higher than the standard deduction.

Good luck - and enjoy your new home.

Answer 3

The only thing that will be deductible is the prepaid interest/taxes and any buy down points you pay at closing. just take your settlement statement with you to your tax person and they'll figure it out.

Banks often require 5 months to be paid in advance of taxes-- so if your taxes were $2200 a year, that may be $1,000+ you'll pay at closing and then deduct (assuming you itemize). Because you're clsoing on the 28th, you'll only have about 3 days of prepaid interest-- probably only about $100.

If you dont pay any discount points, you'll probably only have about $1000 to deduct on this year's taxes.

Next year all the interest/taxes will be deductible.

Answer 4

Almost all of your first few years payments can be deducted from your taxable income. For instance, if you're making 40000 a year, and your mortgage is 10000 in the first year, you can change your witholding to an income level of 30000 and for FY 2007 you won't owe tax on that. You would benefit somewhere around 300 a month in your pay which you can put towards your mortgage. For FY 2006, you won't be able to deduct anything except your transfer tax

Answer 5

Most likely not that much. You have to offset the standard deduction. You won't be making any payments in 2006 so the only dedution you definately would have is the actual out of pocket closing costs (not what's financed). There may be others but you should contact a CPA or a Tax Specialist.

Answer 6

The only real advantages to owning a home is that interest and property taxes are deductible on Schedule A, but if you do not file a Schedule A(the total of Schedule A is not higher than your standard deduction), it does you no good. I would not adjust your withholding unless you are sure you will file Schedule A for 2007.

Answer 7

Wayne Z is correct. Unless you are already able to itemize on schedule A, it would be most beneficial to amortize the points. Next year, you will have much more to look forward to with a full year of interest and property taxes to deduct. Congratulations on your purchase!

Answer 8

All the deductibles in the purchase will be applied to 2006 returns. You can, however, defer the tax payment after Jan 1st, if you prefer to claim all these for 2007 incomes.

Answer 9

At this point, you would only have paid "partial interest", from the time the loan funds to your first payment date. Some of the points and closing fees associated with this loan maybe tax deductible depending on your tax bracket.

Answer 10

You closed too late in the year to receive any benfit for 2006.

Next year, make the election to amortize the points over the life of the loan. This will give you a small deduction each year instead of a large deduction in 2006 where it will do you no good.