Taxes for a new homeowner (real estate, renter, condo)

[Johan85]

Hello guys,

I purchased my home in Brooklyn in Aug. 2011. This is the First year that I will be doing the long form. Here are a few Questions/Concerns:

-Can I claim any or all of the repairs I have done on the house (I insulated the house, installed energy doors, etc)?
- Will I be getting all the interest I paid or just a percentage? ( approx. Percent amount?)
- Also how does the return for property taxes work?

Also, is it common that the interest and taxes that were applied at closing are not included in the 1098 form?

I'll admit I'm a newbie when it comes to this, I'm going to speak with a new accountant tonight and just want to be prepared for certain things..


Thanks

[SobroGuy]

You need to hire a professional to handle your taxes at this point. He will be knowledgable on all deductions, depreciation of the building and other items (like appliances, etc), and other one-time savings like energy efficient window credits etc.

Go with a professional otherwise you will be leaving alot of money on the table.

[Johan85]

Im going tonight, just wanted to hear some input

[bellakin123]

Congratulations on being a home owner!

Deductions and interest refunds are hard to say. Depends on how your current tax withholdings are. In other words, now that you have a house and mortgage, do you claim more dependents so there's a little extra cash on the paycheck? If so, you have to factor that in when you file your taxes. I remember the 1st year we did our taxes after we purchased our home. We were able to claim some of the closing costs. We don't get back all of the interest paid on the mortgage. Part of that is due to our withholding status. We'd rather have extra cash in case of emergencies rather than both claiming zero and getting killed with the tax withholdings. I asked my accountant about repairs and he said not all can be claimed. We had new windows and a door installed. We were able to submit for the energy efficiency credit. If you're submitting the credit for those, be sure that they qualify for the tax credit because not all energy efficient products qualify. Also keep in mind that home improvements are not the same as home repairs. Fixing things that are broken or worn out around your home are generally considered “home repairs” and generally do not count towards any sort of tax deduction or tax credit. However, if you replace something that is worn or broken with something new (such as more energy efficient windows or doors), then that may be seen as a home upgrade or home improvement and contribute to your tax refund. I believe if you have to do a home improvement due to medical reasons, that may be tax deductible also.

[Kefir King]

In general,
on a private home you cannot claim the cost of repairs, or the interest on the money to do so. In fact the ONLY deductible interest is mortgage interest...unfair but heck there's little that's fair about the tax code.
Some BIG energy efficient jobs can yield tax credits that may still be current, but don't count on them with a private one family...but do look into them if, for example, you put in super high efficient central air conditioning. Fixing up homes in certain designated areas might also yield credits...byt again, don;t count on it.

Most closing cost items are NOT deductible but any costs that involve interest on a mortgage ARE. Also property taxes, unless "in lieu of" payments (involving abatements) are Itemized Deductions.

Since you get a Standard Deduction, dependent on marital status, age, etc. of several thousand dollars, you need to exceed this amount to make ANY itemization of deductions worthwhile. For example, married filing jointly under 65 get $15,000 without itemizing so if your
sum total of deductions is $14,000 then you just take the Standard Deduction, a LOT less work .


If you are using this home to generate INCOME though, it ls a whole different ballgame and, like Sobro said, get a professional.

[jad2k]

This is a timely thread. I added a new tax wrinkle when I closed on a condo last month. I'm going to bring this up with my accountant but I wanted to just hear some feedback from the forum:

I bought a new condo and moved out of my former co-op (but didn't sell the co-op). An immediate relative (father) moved into the co-op. I was planing to outright rent it, but a situation came up: parents got divorced, my mom got the house, so it was just convenient for my dad to move into the co-op. There is no formal rental contract in place but I of course told the co-op board that my dad was moving in. They didn't have a problem with it because 1) he's my father and 2) he's actually documented as the guarantor. I bought the place when I was just starting out in the working world so the board was nervous about me being so young and my financial stability at that age so they asked for someone to be responsible [for the maintenance payments] if I wasn't able to pay. So my dad "took over" my co-op. I didn't even bother to take my name off of the bills: he just pays me directly for the bills, including the cost for the remaining monthly mortgage and maintenance, and I pay out everything accordingly.

I have no idea how this relationship plays out in the "tenant/rental income" world and how this will factor into my taxes this year. Any thoughts about the situation?

[Kefir King]

You had best formalize the arrangement otherwise you are going to find yourself in a sticky mess when it comes to tax time. In any case it's going to be sticky.

Why not have him buy you out and keep the whole thing clean.

Telling the IRS that you are renting your co-op to your father and claiming income from the transaction and deducting expenses, ESPECIALLY if he's the guarantor, is going to get you audited...perhaps both of you. It's all too fuzzy.

There is no formal rental contract in place

If you really want to keep the situation, then make sure you formalize it in writing, perhaps with a tax accountant's help.

[mathjak107]

Originally Posted by Kefir King

In general,
on a private home you cannot claim the cost of repairs, or the interest on the money to do so. In fact the ONLY deductible interest is mortgage interest...unfair but heck there's little that's fair about the tax code.
Some BIG energy efficient jobs can yield tax credits that may still be current, but don't count on them with a private one family...but do look into them if, for example, you put in super high efficient central air conditioning. Fixing up homes in certain designated areas might also yield credits...byt again, don;t count on it.

Most closing cost items are NOT deductible but any costs that involve interest on a mortgage ARE. Also property taxes, unless "in lieu of" payments (involving abatements) are Itemized Deductions.

Since you get a Standard Deduction, dependent on marital status, age, etc. of several thousand dollars, you need to exceed this amount to make ANY itemization of deductions worthwhile. For example, married filing jointly under 65 get $15,000 without itemizing so if your
sum total of deductions is $14,000 then you just take the Standard Deduction, a LOT less work .


If you are using this home to generate INCOME though, it ls a whole different ballgame and, like Sobro said, get a professional.

the standard deduction for a couple under 65 is 11,600 for 2011 plus the personal exemption of 3700 bucks each.

the deductions for mortgage interest and real estate taxes arent a good thing from a tax stand point . they just mean you paid in 4 bucks over and above the price of the house as an expense and got back 1 of those dollars or so. all things being equal if you could get rid of those expenses your way further ahead without them being a deduction..

its no different than if you got a 1 dollar rebate on your electric bill for every 4 you spent,its not anything really benefiting your tax rate on all your other income in effect.

since a renter and homeowner both get the same standard deduction the first 11,600 in interest and real estate taxes paid by a couple are lost to the standard deduction .

if you trip the amt real estate taxes cant be written off either.



closing costs are added to your cost basis.

repairs arent deductable but capital improvents can be added to your cost basis but they are not deductable as is. becareful though as the way the irs looks at repairs and the way you look at things as capital improvements are not going to be the same view.


replacing a worn carpet may be a capital improvement to you but to the irs its a repair.


if your renovating the house and put new carpet in then thats a capital improvement.

[mathjak107]

one thing i want to add is while closing costs are added to your cost basis any points you paid are tax-deductible.

Each point equals 1% of the loan amount, its really prepaid interest because these dollars were used to buy down the interest rate on the loan.

as far as how you get this back in your taxes?


all your qualifying deductions are added up and if they come to more than the standard deduction then your taxable income is reduced by that amount and you pay the taxes on whatever your remaining taxable income is.


taking 15,000 out of your bank or paycheck to pay the mortgage interest and real estate taxes which are expenses over and above the house price and then getting back the deduction for it which gives you back maybe 3500.00 bucks leaves your piggy bank poorer . so being able to deduct certain expenses isnt really helping you tax wise on all your other income since you had to spend additional money and are merely getting a rebate back..


keep in mind too as time goes on you pay less and less in interest and more and more in principal so by the latter part of your mortgage you get less and less of a mortgage interest deduction and less and less of that mortgage you pay gets rebated back.


if your counting on getting a piece of the mortgage you pay getting rebated to help defray the cost forget it, dont calculate the rebate part in the equation. that may or may not be there depending on your stage your in with your mortgage and your amt tax situation if you have one.



the deductions that go with homeownership carry much confusion and folks think they are a benefit to ownership but they arent really. you won the right to spend 4 bucks to get back 1 buck,thats all it means.

the real winner tax wise is the renter.... surprise!....


the renter may have a few grand in state and local taxes and basically gets the rest of the entire standard deduction applied to reducing his other taxable income without spending any extra money.. the renter is really getting more in piggy since he is getting back more than he spent.

the homeowner really pulled the first 11,600 out of piggy ,spent it on interest and real estate taxes and lost it to the same standard deduction.

[Kefir King]

Sorry about that "joint Standard Deduction of $15K." My mind was elsewhere.