Renner Individual News; December 12, 2022
Buying your first home can be an anxious experience. Filing your first tax return as a homeowner doesn’t have to be, though, if you know what’s deductible.
As a first-time homeowner, you should make yourself familiar with authorized deductions, programs that can assist with home ownership and the use of housing allowances that can be beneficial.
According to figures on homebuyer.com, 31% of home buyers in 2021 were first-timers. That’s after a record 2.38 million first-time home buyers signed on the line in 2020.
The IRS considers a home to be a house, condominium, cooperative apartment, mobile home, houseboat or house trailer that contains a sleeping space, toilet and cooking facilities.
Typically, you take out a mortgage loan to buy your home and then make monthly payments to the mortgage holder, which may include several costs of owning a home.
“New homeowners should be on the lookout for a 1098-MIS mortgage interest statement from their mortgage broker to submit with their tax documents,” said Paige Mason, tax manager at Renner and Company. “Homeowners’ deductions can be taken on your primary residence and a second home.”
The only costs you can deduct are:
- State and local real estate taxes, subject to the $10,000 limit
- Home mortgage interest, within the allowed limits, and
- Mortgage insurance premiums
- Points – Points paid to acquire your main home are deductible when paid. Points paid on acquiring a second home or home improvement loans can be deducted over the life of the loan.
You must then file Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Income Tax Return for Seniors, and itemize the deductions to deduct home ownership expenses. However, you can’t take the standard deduction if you itemize.
“There are certain other deductions that can be claimed, when a homeowner has a home office,” Paige said.
She added that, as an accountant, she likes to see her clients’ HUD-1 — a document that lists all charges and credits to the buyer and to the seller in a real estate settlement, or all the charges in a mortgage refinance — for the purchase of new homes.
“If nothing else, we at least need to know the new address for our clients when they purchase a new home,” Paige said.
As a homeowner, you can’t deduct any of the following:
- Insurance, other than mortgage insurance, including fire and comprehensive coverage, and title insurance
- The amount applied to reduce the principal of the mortgage
- Wages you pay for domestic help
- The cost of utilities, such as gas, electricity, or water
- Most settlement or closing costs
- Forfeited deposits, down payments, or earnest money
- Internet or Wi-Fi system or service
- Homeowners’ association fees, condominium association fees, or common charges
- Home repairs
“Homeowners should track their capital improvements made to their house, over their ownership period,” Paige said.
There’s more to know about this. Contact Renner and Company here to learn more about homeownership deductions.
© 2022 Renner and Company, CPA, P.C. All Rights Reserved.