New Home

[VERA L]

Purchased a new home this August, what are the basic first steps on updating my taxes on employer W2's and what specific specialty items am I able to deduct on my next itemized return as a new home owner? I can elaborate further on the second question if need be?

[xmasbaby0]

You do not enter anything on your W-2 about being a home owner.   Your W-2 comes from your employer and reports how much you were paid and how much tax was withheld from your paychecks.  Nothing about owning a home goes on that document.

HOMEOWNERSHIP DEDUCTIONS

It is very hard for a lot of people to use itemized deductions now that the standard deduction is so much higher.  Your home ownership may not have any effect on your tax due or refund, especially if you purchased the house late in the year.  

Standard Deduction
Your itemized deductions have to be more than your standard deduction before you will see a change in your tax owed or tax refund.  The deductions you enter do not necessarily count “dollar for dollar;” many of them are subject to meeting  tough thresholds—medical expenses, for example, must meet a threshold that is pretty hard to reach.  The software program uses all the IRS rules that apply to the expenses you enter, and it tells you if you have enough to use your itemized deductions or if using the standard deduction is more advantageous for you.  Under the new tax laws, some deductions have been capped—there is a $10,000 limit to the itemized deductions for state, local, property and sales taxes. 

2023 STANDARD DEDUCTION AMOUNTS

SINGLE $13,850  (65 or older/legally blind + $1850)

MARRIED FILING SEPARATELY $12,850  (65 or older/legally blind + $1500)

MARRIED FILING JOINTLY $27,700  (65+/legally blind) )  + $1500 per spouse

HEAD OF HOUSEHOLD  $20,800 (65 or older/blind)  + $1850)

Home Ownership

There is not a first time home buyers credit on a Federal return. That ended in 2010. If your state has such as credit, you will be able to enter it when you prepare your state return.

Buying a home is not a guarantee of a big refund.  Your deductions for homeownership combined with your other deductions (if any) must exceed your standard deduction to change your tax due or refund. If you purchased your home late in the year, you do not even have a full year of home 

ownership deductions.

Your closing costs on your new home are not deductible except for prepaid interest, prepaid property tax or loan origination fees.  There are no deductions for appraisal, inspections, title searches, settlement fees. etc.

Your down payment is not deductible.

Your homeowners insurance for fire, hazard, flood, etc. is not deductible for your own home.

Home improvements, repairs, maintenance, etc. for your own home are not deductible.  

Homeowners Association  (HOA) fees for your own home are not deductible.

Go to Federal> Deductions and Credits> Your Home to enter mortgage interest, property taxes, and loan origination fees (“points”) that you paid in 2023 when you prepare your 2023 return next year.  You should have a 1098 from your mortgage lender that shows this information.  Lenders send these in January/early February.

[MarianneK]

Hi Vera, 

Congratulations on your home purchase!!

Let me make an assumption that you are filing as single.   When filing taxes you can either take the standard deduction for single OR do itemized deductions.   Your best tax outcome will be which ever deduction is higher.   In TY 2022 the standard deduction for single is $12,950.   So, in order to benefit taxwise from the purchase of a home, your itemized deductions need to be higher than $12,950.   

Generally speaking, in the year you purchase your home you will not have a large deduction for mortgage interest or real estate taxes unless you started making mortgage payments in January.   

When purchasing a home there are a couple of deductions that may help you on your tax return.  Those are: mortgage interest, real estate taxes and possibly points if you paid those at closing.  Other itemized deductions include state and local taxes, charitable contributions, plus a couple more.   

Without knowing your exact tax situation (income and mortgage amounts) I cannot say which deduction will be better.   Since the standard deduction has risen, many people no longer have enough itemized deductions to use.   

I would not recommend any changes to your W4 at work for now.   I would recommend you wait and see if you are able to itemize.   I know many people think that buying a home will provide them with tax savings.  That sometimes is true.   It's still a great investment to be a home owner.   

[VERA L]

Thank you, this is all valuable information.

[VERA L]

Thank you for this detailed response! I am curious about a few of the points you brought up. When would be the most ideal time to make the appropriate changes to my w4 for work, and how would being able to itemize rather than go with the standard deduction have an effect on that decision?

[MarianneK]

Hello again!!

My advice would be not to make any changes to your W4 assuming that prior to buying your home your withholding was correct.   Not everyone will see a tax benefit from buying a home.  I know some realtors tell their clients that buying a home will save them money on taxes.   Unfortunately, that is not always correct.  

Here's an example:  Say you bought a high priced home and your mortgage interest alone was over the standard deduction.  In that case, you would benefit from buying the home as you would be able to take the itemized deduction.   I still would not advise changing your W4 especially until you have a couple of years of paying on the mortgage and you are sure you can itemize.