If you were like many Americans who purchased a home for the first-time last year, it’s important to understand how your taxes may be affected. Here is a quick checklist of things to think about as you prepare your return:
- Mortgage interest. You could deduct the interest you paid on your monthly payment, if your mortgage debt is under $750,000.
- Mortgage points. If you brought your mortgage interest rate down, you could deduct that cost from your first tax filing after your purchase.
- Property taxes. Make sure you deduct your real estate taxes. You may be eligible to deduct a total of $10,000 in state and local property taxes if you are single, a head of household, or if you’re married and filing jointly. If you are married and filing separately, you can deduct up to $5,000.
- Mortgage insurance payments. If you put less than 20% down on your home, you are most likely paying mortgage insurance. This amount is deductible too!
- Home office space. A lot of people are working from home now, and if you have dedicated space to conduct business, you could deduct that square footage on your taxes.
- Waived IRA fees. If you dip into your IRA account to help with your down payment, the IRS will waive the 10% penalty for removing money early. To receive this benefit, you can take out up to $10,000.
- Energy-saving improvements. There are tax credits available if you install certain energy-efficient equipment in your home. If you’ve added energy-efficient insulation, doors, heating and air-conditioning systems, wood stoves, water heaters, etc., you could be eligible.
Before you submit your tax return, make sure you have all your documentation organized. Gather any tax documents you received from your mortgage lender, receipts for home improvements you completed, or details about donations you made during the last year.
You still have one month until the tax filing deadline. Don’t wait to get started in case your accountant or tax filing system needs additional information. If you have any questions about any of the tax deductions mentioned above or other incentives you may be eligible for, reach out to your loan officer and they can answer any questions you may have.
Depending on your annual income, you may qualify for a mortgage interest credit. In order to receive this credit, you will need a Mortgage Credit Certificate (MCC). The IRS will require the MCC in order to grant the interest credit so be sure to speak with a Loan Officer to find out if you qualify.
The Mortgage Credit Certificate allows first-time homebuyers to reduce tax liability dollar-for-dollar by a percentage of the interest paid on the mortgage. This credit can range from 20% to 35%, depending on the MCC program. However, any interest not included as part of the tax credit can still be eligible for home mortgage interest deductions on your federal tax returns.
If you purchased a home with the MCC this year be sure to have these handy when filing your taxes this season:
- Mortgage Credit Certificate (issued directly after closing)
- IRS Form 8396 (attach this to your 1040 form)
We recommend consulting with a tax professional so that you can best maximize your savings! And for additional information, contact one of our loan officers.
2019 has come to an end which means tax season is right around the corner. Soon it will be time to prepare your 2019 tax returns and it pays to be ready! Getting prepared early can not only save you time and stress but potentially money. It’s especially important if you have experienced major changes throughout the year such as getting married or buying a home. The IRS encourages early preparation and has recently shared a few tips that can give you a head start.
Always making sure you’re paid up on your taxes is important. The IRS expects that you will have paid most of your tax bill by the time you file your return. If your taxes are being withheld from your pay, chances are that’s enough to cover your total bill and even leaves you with extra for a refund. But keep in mind life events can happen which affect your tax withholding. You will want to make sure your withholding will also take care of any other income you receive from other sources such as a business or investments.
Of course, you won’t start receiving your W-2s or 1099s until January at the earliest, but there are a few things you can do while you wait. Gathering important records and documents ahead of time will allow for a quicker return. Making sure your address is up to date with your employer and investment providers will ensure you receive these forms in a timely manner. Creating a checklist is also very helpful and can be used every year. Look at your old tax records to compile of list of what materials you were sent. Use that list to create a checklist so you know what to expect throughout the tax season. If you have recently purchased a home, there are some additional documents you may need to gather such as the settlement statement, property tax statement, and if you’re a first-time homebuyer, your Mortgage Credit Certificate.
When you’re all set to file, consider doing so electronically! Every year the IRS is encouraging taxpayers to file electronically for many reasons. Not only is filing electronically quicker and more secure, but it also’s easier and highly accurate. Anyone with a bank account is eligible for direct deposit. Meaning your refund will be automatically sent to your bank account, so you won’t have to wait to receive the check in the mail.
Now that the holiday season is over, preparing for tax season should be at the forefront of your mind. Taking steps to ready yourself will prove to be beneficial in the future.