income tax savings account?

Question

how would having 40-100k (in a pre-existing savings account) effect your income taxes, especially if the money were in an account under your name, AND you were a first time home buyer? Would you be paying taxes or geting a refund (I know that home buyers-especially first time home buyers-get a reasonable refund)

Answer 1

Money in a savings account, or taking it out, doesn't have any effect on your taxes except that any interest you get for the year is taxable.

As to the home purchase, you don't know what you think you know. And first time doesn't make a difference to federal taxes - I believe there's some kind of money available for it if you live in Washington DC but that's local, not federal.

If you own a home, you can deduct mortgage interest and real estate taxes as itemized deductions if you have enough deductions to itemize. But depending when in the year you bought the home, it might not add up to enough, especially the first year. And be aware that if you itemize, you don't get to take the standard deduction. The mortgage interest and real estate taxes don't make as much difference in your tax as some people think. As an example, if you're married filing a joint return, are in a 15% tax bracket, and your total itemized deductions including the mortgage interest and real estate taxes are $15,000, your total tax savings from itemizing is $645, compared to not having the house, and not itemizing, just taking the standard deduction.

Answer 2

Getting a refund has nothing to do with owning a home or having money in a savings account. The ONLY way you get a refund is if your tax liablilty is less than how much you have paid in via withholdings or estimated tax payments OR if your tax liability is reduced to zero and you have refundable credits such as the EIC.

If you own your home and pay a mortgage on it you may deduct your mortgage interest and you can always deduct the property taxes if you itemize. Whether itemizing is worthwhile or not depends upon your deductions exceeding your standard deduction for your filing status. Many new homeowners are shocked to discover that their itemized deductions are not high enough to exceed their standard deduction so they get zero tax benefit from home ownership. This is particularly true for married couples with a $10,700 standard deduction if they bought late in the year or if they bought in a lower cost area even a couple of years earlier.

As far as the savings is concerned, any interest you receive is taxed as ordinary income. You must claim it on your return. If anything, that will reduce any refund that you would have otherwise been entitled to since it increases your tax liability.

Answer 3

If the savings account is at a bank and represents taxable interest, then it's going to increase my taxes.

Eg, $40,000 in asset can generate $1600 in interest. This increases my taxable income by $1600 and if I'm in the 25% tax bracket, I pay another $400 in tax.

If I've also got a $200,000 mortgage and paid $16,000 in interest and property taxes (first time homeowner, 8%), I'd I would itemize instead of the standard deduction. For married people who already get a standard deduction of $10,700, this lowers my income by $5300 and my tax at 25% by $1325. ($400-$1325 = $925 net tax savings.)

If I used the $40,000 instead to pay down the mortgage, I would have no additional interest income, paid $12,800 in schedule A and see $525 in tax savings. The question becomes do I want to give up $40K of liquidity to save $400.

Answer 4

you may desire to pay tax on the pastime, although if or no longer you're taking it out of the account. The economic enterprise will document it to the IRS and you will document a return showing the pastime as income. it is going to be taxed at your favourite tax fee, as in case you will earned it by way of an enterprise.