Buying a home is a huge financial decision and one of the biggest transactions most people will ever make. Given the amount of money involved, it seems inevitable that this purchase will have some kind of an impact on your taxes. But what will that look like? This article will get into some of the details of what might happen to your tax picture when you purchase a home.
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A Complex Matter
You probably won’t be surprised to learn that the tax implications of buying a home are a little bit complicated. Of course, that tends to be how it is with taxes in general, and that’s especially true with major purchases like a home. So, it’s not as simple as just saying that buying a house is “good” or “bad” for your taxes because the reality you experience will depend on your situation and the details of the deal. But in general, most professionals say that buying a home has an overall tax advantage.
Standard vs. Itemized Deduction
The big variable here when talking about the purchase of a home and subsequent tax filings is whether or not you will itemize your tax return moving forward. The standard deduction is available to everyone, requires no documentation, and might be your best bet in many tax years. However, it could be possible to save money with an itemized deduction in some cases, such as in the years after you purchase a home.
There are a few different homeowner tax deductions offered by the IRS, but those will only come into play if you choose to itemize. So, will definitely want to get the help of a tax professional to review your options and determine which is the right way to proceed with your tax filing.
Some of the Possibilities
If you do wind up itemizing your return, some of the options available to you as a homeowner may include the following –
- Property tax. Most likely, the largest deduction you will have available to you as a homeowner is the property tax deduction. When you make your monthly mortgage payment, you’ll be paying property tax along with it – and that tax is deductible at the end of the year. Depending on the size of your property and where you live, that deduction could prove to be quite significant.
- Mortgage interest. The interest that you pay on your mortgage is another deduction option and another one that could be rather meaningful if you have a large mortgage and a relatively high rate.
- Home office. With so many people now working from home, you might also be able to claim a deduction if you have established a home office. Be sure that your office complies with all of the relevant rules to claim this deduction legally.
Seeing the Big Picture
Taxes are just one part of the equation when getting ready to purchase a home, but you don’t need to let this process overwhelm you. Instead, put the experience of Smith Marketing on your side and know that you are in good hands.