Purchasing your first home is a really big step for many people. Whether a fixer-upper or your perfect dream home, homeownership is a milestone that can have a pretty steep learning curve. There are lots of things to learn about owning and maintaining a home.
When it comes to home ownership, the IRS considers a home to be a house, condominium, cooperative apartment, mobile home, houseboat or house trailer that contains a sleeping space, toilet and cooking facilities.
One of the things you should learn right away is what tax advantages, allowances and deductions you can use to help cushion the cost of owning your home.
First, the items you can deduct are:
• state and local real estate taxes, subject to a $10,000 limit
• home mortgage interest, within the allowed limits
• mortgage insurance premiums
Note that you must file Form 1040 and itemize your deductions to deduct home ownership expenses. Which means you can’t take the standard deduction.
These homeowner expenses CAN NOT be deducted:
• Insurance, other than mortgage insurance, including fire and comprehensive coverage, and title insurance
• The amount applied to reduce the principal of the mortgage
• Wages you pay for domestic help
• Depreciation
• The cost of utilities, such as gas, electricity, or water
• Most settlement or closing costs
• Forfeited deposits, down payments, or earnest money
• Internet or Wi-Fi system or service
• Homeowners’ association fees, condominium association fees, or common charges
• Home repairs
Ministers and members of the uniformed services who receive a nontaxable housing allowance can still deduct their real estate taxes and home mortgage interest. They don’t have to reduce their deductions based on the allowance.
To read the specific IRS rules related to tax information for homeowners go to Publication 530, Tax Information for Homeowners and Publication 936, Home Mortgage Interest Deduction.
