3 Tax Rules You Need to Know If You Purchased a House Last Year
Buying a house is a big investment. It can come with lots of hidden expenses, too, like repairs you didn’t know you’d have to make, higher utility costs, and even homeowner or neighborhood association fees. To soften the blow, you can save some money on your taxes after you buy a home. If you bought a house in the last year, make sure you’re aware of these opportunities for tax credits and deductions.
Deduct Mortgage Interest and Property Tax
The largest tax benefit you’ll get when you purchase a home is the ability to deduct mortgage interest and property tax from your taxable income. It’s pretty simple — your lender will send you a 1098 form with mortgage interest information to use with your taxes for the year. If you paid your property taxes into your lender’s escrow account, that will also be on the form. If you pay directly to the county you’re in, keep records of your payments to use come tax time.
Marissa Sweet, a property tax advisor at Direct Tax Loan, notes that there are two important things to remember:
“First, if an owner uses an escrow account, the owner cannot deduct tax payments made into this account,” she says. “Property taxes are only deductible once the payment is made by the lender to the county. Second, depending on how taxes are paid in the specific county [whether they’re paid in advance or in arrears], during the year that the property was purchased, the buyer may have reimbursed the seller for taxes paid in advance.”
If that’s the case, just look at the final settlement statement for your home and check for a reimbursement to the seller. If there’s one listed, bring that statement with you to your accountant.
Deduct Mortgage Insurance Premiums
If you put less than 20 percent down on your home purchase, you’ll be required to get mortgage insurance charged through your lender. Depending on your state and your borrower, it might not be that expensive — anything from a few bucks a month to a couple hundred. But there’s a perk to it, says Marina Vaamonde, real estate investor and founder of HouseCashin.
“Depending on the current tax law and the adjusted gross income, a homeowner may be able to deduct some of this from their tax liability,” she says.
Remember Renewable Energy Tax Perks
You can’t get tax credits anymore for building or owning an energy efficient home — that perk ended at the close of 2021 — but you can get tax credits if your home uses renewable energy products. It doesn’t matter if it’s an existing home or new construction, either. You can get up to a 26 percent tax credit if your home has any of the following: geothermal heat pumps, small wind turbines, solar energy systems, fuel cells, and biomass fuel stoves.