The Southlands

Tax Benefits of Home Ownership

Feb 21, 2001

Tax Benefits of Home Ownership
By Robert L. Cook, CPA?—The Forests of Southland

For the average taxpayer who itemizes deductions, the biggest tax savings by far comes from home ownership. I?’m talking about your primary residence?—not rental property, second homes, investment property, etc.?—these have their own special tax rules.

If you joined the Southland community during 2000, you may have tax benefits coming to you that could get overlooked?—the prorated interest and taxes covering the partial year of ownership. At your closing, one of the many pieces of paper that you received was a settlement statement. The settlement statement includes a long list of fees and charges such as closing fees, title fees, transfer fees, transfer taxes, appraisals, etc. Typically, this settlement statement also includes prorated interest, prorated property taxes, and ?“points?”, all of which can reduce your taxes as itemized deductions.

All of us as homeowners typically receive a Form 1098 each year, which indicates how much we paid in interest on our mortgage loan and how much we paid in property taxes. For most of us this is a significant part of our itemized deductions, if not the biggest. Other possible tax benefits of home ownership such as an office in the home, rental property, etc. are beyond the scope to this article. In these and other complex situations, you should consult a tax professional such as a CPA or Enrolled Agent.

An additional benefit that may be available to certain new homeowners is the option of using IRA funds to help pay the costs of the new home purchase. The buyer cannot have been a homeowner within the last two years (although the language reads ?“first-time?” homebuyer). IRA funds can be withdrawn and used without the 10% penalty, but the funds will be taxed as any other income would. If your tax situation has changed because of a home purchase, you should consider changing your withholding so you have less taxes taken out of your paycheck. Better to keep your own money than to give Uncle Sam an interest-free loan.

You can quickly figure the tax impact of your mortgage interest and property taxes by multiplying your tax bracket percent times the deductible costs. For example, if your mortgage interest and property taxes total $15,000, and your federal tax bracket is 33%, your tax savings from home-related tax deductions would be just under $5,000.

Remember that when you are dealing with tax issues, everybody?’s situation is a little different, and things can get complicated. Rather than guessing and keeping your fingers crossed, you may want to use the services of a neighborhood tax professional such as a CPA or Enrolled Agent. The joy of home ownership is worth more than any tax deduction. But since many of us pay 40 cents or more of every dollar we make in taxes, it is your duty to reduce your tax liability as much as legally possible.

Robert L. Cook is a CPA and an Enrolled Agent. He and his family have lived in the Forests of Southland for 7 years. Robert is the Sr. Partner of Cook & Associates, CPAs, with offices on Lawrenceville Highway just inside 285. He can be reached at 770/934-3400. The Firm is offering a $25 discount on tax preparation to all Southland residents.