A great milestone of your financial life is the purchase of your first home.? While less exciting, the tax implications of that achievement are no less critical.? After all, home ownership creates several new opportunities for you to save on your taxes. ?Got your attention?
Mortgage Interest Deduction
That big fat mortgage payment you now have to pay every month has an upside. The interest portion of every payment is tax deductible.? Keep in mind that, at the beginning of your mortgage, most of your payment is interest, meaning that the overwhelming majority of your payment may be tax deductible.
Real Estate Tax Deduction
Money you pay for real estate taxes is tax deductible (please consult your CPA.)? While it?s never fun to learn that your property taxes have gone up again, at least you will be able to take some solace in knowing your tax deductions (and your resulting income tax savings) will increase at the same rate.
Charitable Donation Deduction
While the charitable donation deduction might seem unrelated to a home purchase, this is income taxes we?re talking about.? Before you purchased your home, you may not have had enough tax deductions to itemize your deductions.
Why?? Since your standard deduction was greater than your itemized deductions, you did not benefit from any of the itemized deductions like charitable contributions.? But when you became a homeowner, the mortgage interest and real estate taxes alone often make it so that you will be able to itemize and you are now eligible for additional tax deductions. One of the most common of these is the charitable donation deduction. So, if you tithe at church or give clothes to the Vietnam Veterans, you will now also receive a tax benefit from doing so.
Other Considerations for First Time Home Buyers
Save your closing statement (HUD).? When you file your tax return for the first time after buying a home, additional expenses incurred on your HUD may be tax deductible, including pre-paid points you pay at closing.