Purchasing a new home

[jeffrey-davis4]

I am purchasing a new home; settlement is not expected until Jan-Feb, 2023. Please itemize for me any/all items I should be focused on to maximize the tax deductions regarding a new home purchase.  

[VincentL]

The only tax deductions on a home purchase you may qualify for is the prepaid mortgage interest (points). To deduct prepaid mortgage interest (points) paid to the lender, you must meet certain qualifications to deduct the interest.

All other settlement expenses are added to the cost basis of the home. For example, you purchased a home for $100,000 with $500 in settlement costs. The cost basis of the home is $100,500.

See IRS publication 530 for information on deducting home expenses after you purchase the home.

https://www.irs.gov/pub/irs-pdf/p530.pdf

[Mike9241]

there aren't too many deductible expenses related to a home purchase/ownership - mortgage interest, points, and possibly real estate taxes that you pay that relate to the period you owned the home.  

[Opus 17]

there's nothing you can do now.

When you close, you will pay daily interest from the closing date to the end of the month, shown on your closing statement.  This may not be included on your mortgage interest 1098 statement you get in January 2023, but you can add it to your deductible interest even if it is not included in your 1098.

You may also pay property tax as an adjustment on your closing statement. For example, if the buyer paid property taxes for Jan-Dec 2023 on Jan 15 and you close Feb 15, you will give the seller a credit for most of the year's taxes that they prepaid but go to the time you owned the home.  You can deduct those as if you paid them directly to the taxing authority even if they are not on your 1098.  On the other hand, suppose the seller's taxes are due Feb 15 and you pay them.  The seller will give you a credit for the days they owned the home, and you can only deduct the part allocated to the days you owned the home, even if the entire amount is on your 1098.

At this time, PMI or MIP is not deductible for 2022 or 2023. 

If you pay points to get a lower interest rate, they may be deductible in full in the year you buy the home, if you meet certain conditions.  There is more info here. https://www.irs.gov/forms-pubs/about-publication-936

If you pay more because the seller has solar on their home you don't get a tax credit, that's only for new installations.  

Most closing costs are not deductible but they are added to the cost of the home and may reduce your capital gains when you sell, if you keep track.  you can read more about that here https://www.irs.gov/forms-pubs/about-publication-523

[xmasbaby0]

You are not going to have anything to enter about  a home you purchase and close on in 2023 until you file a 2023 tax return in 2024.  Who knows----maybe Congress will change some tax laws by then.   But we can tell you about the current tax laws regarding a home you purchase.

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, private mortgage insurance (PMI) and loan origination fees (“points”) that you paid in during the ta year.  You should have a 1098 from your mortgage lender that shows this information.  Lenders send these in January/early February.

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. 

2021 STANDARD DEDUCTION AMOUNTS

SINGLE $12,550  (65 or older + $1700)

MARRIED FILING SEPARATELY $12,550  (65 or older + $1350)

MARRIED FILING JOINTLY $25,100  (65 or older + $1350 per spouse)

HEAD OF HOUSEHOLD  $18,800  (65 or older +$1700)

Legally Blind + $1350

[Carl]

When purchasing a home for personal use, be it your primary residence or 2nd home, there are only two deductions you can take on your federal tax return.

- Mortgage interest, to include any prepaid interest that is typically clearly itemized and identified as such on the closing statement.

- Property taxes paid to the local taxing authority or reimbursed by you, to the seller. This to will be clearly identified as such and itemized on the closing statement.

Any other expenses paid are not deductible at all, ever. Some expenses are added to the cost of house, while other expenses are just flat out not deductible at all.

For those expenses that add to the cost basis of the property, that will not come into play on any tax return unless one of three things happens in the future, after you close on the purchase of the house.

 - You sell the property.

 - You convert the property to a rental property, or some other type of business use.

 - You die.

So it's important that you retain a copy of "ALL" paperwork you receive at the closing, and keep it in your physical possession for as long as your own the property. If you have a Last Will & Testament, it's not a bad idea to keep a copy of that paperwork with it, as your heirs will find it very helpful should you pass while you own the property.