1. Primary Residence Purchase (April 2025)
- Itemizing on Schedule A: To determine if itemizing beats the Standard Deduction, you must compare your total allowable itemized expenses against the flat standard deduction. For context, the Standard Deduction under the IRS is $15,750 for single filers / $31,500 for married filing jointly in 2025, and increases to $16,100 / $32,200 in 2026.
- The SALT Cap Increase: Under the One Big Beautiful Bill Act (OBBBA), the cap for the State and Local Tax (SALT) deduction—which includes your Pennsylvania real estate taxes—increases to $40,000 ($20,000 if married filing separately) for tax years 2025 through 2029. You will report your mortgage interest from Form 1098 alongside your property taxes on Schedule A. If their combined total exceeds the standard deduction floor, itemizing will yield greater tax savings.
- Private Mortgage Insurance (PMI): Thanks to the permanent reinstatement of the mortgage insurance deduction via the OBBBA, PMI is officially tax-deductible again. However, the resumption takes effect beginning in tax year 2026. This means your 2025 PMI premiums are not deductible, but your 2026 premiums will be deductible as mortgage interest on Schedule A (subject to an Adjusted Gross Income phase-out starting at $100,000).
- Closing Costs & Points:
- Deductible Now: "Discount points" paid at settlement to lower your interest rate on a primary residence are generally fully deductible in the year paid.
- Basis Adjustments: Most standard closing costs—such as title insurance, recording fees, transfer taxes, and legal fees—cannot be deducted immediately. Instead, you must add them to your home's cost basis. A higher basis reduces your taxable capital gains whenever you sell the property in the future.
2. New Child & Dependent Care / Preschool Expenses (2025–2026)
- Child Tax Credit (CTC): For both 2025 and 2026, the CTC provides up to $2,200 per qualifying child under age 17 (with up to $1,700 available as a refundable credit). Because eligibility is determined by your child's status as of December 31, you claim the full $2,200 credit starting with tax year 2025 (the year he was born) on Form 1040, and claim it again for 2026. The credit begins phasing out if your income exceeds $200,000 ($400,000 for joint filers).
- Child & Dependent Care Credit (Form 2441): Preschool and daycare costs qualify for this credit if they enable you to work. The OBBBA enhanced the maximum credit rate up to 50% of care expenses for 2026. However, the federal expense limit is strictly capped at $3,000 annually for one child. Because your son's tuition is $1,700/month starting in September 2026, your actual 4-month expense will be $6,800. You will easily maximize the credit by claiming the full $3,000 federal ceiling on Form 2441.
- Required Documentation: To successfully claim the credit, you must report the provider’s legal name, physical address, and Employer Identification Number (EIN) or Tax ID on your tax return. You should request that the preschool complete IRS Form W-10 (Dependent Care Provider's Identification and Certification) to officially secure this info for your records.
3. Vehicle Total Loss & Delayed Insurance Settlement (2025–2026)
- Taxability of Payout: An insurance payout for a personal vehicle total loss is treated as a non-taxable recovery of vehicle basis. Because the payout is meant to compensate you for property loss and make you "whole," it is entirely tax-free unless the check exceeds what you originally paid for the vehicle (adjusted basis)—which is incredibly rare for a standard personal vehicle.
- Reporting Year: Since the accident occurred in late 2025 but the payout was delayed until September 2026, the transaction is anchored to tax year 2026. Under tax rules, an event involving a potential reimbursement is evaluated in the year the insurance claim is finalized and the exact recovery amount is determined.
- Casualty Loss / Capital Loss Limitations:
- Federal Rules: Under federal law, personal casualty loss deductions are strictly limited to damage resulting from a federally declared disaster. A standard automobile accident does not qualify, meaning you cannot claim the uncompensated "gap" value on your federal return.
- Pennsylvania State Rules: The Pennsylvania Department of Revenue mirrors this rigid stance; personal casualty losses are not deductible for state income tax purposes. Furthermore, a loss on the destruction of personal-use property is classified as a personal loss and cannot be used to offset capital gains.
