Purchasing a new home is a major financial move that can have tax implications for years to come. If you understand those implications before you buy a house, you’ll be able to make informed decisions that might save you thousands of dollars. Your tax advisor can provide essential information specific to your area and your circumstances.
You May Have to Pay Taxes When You Buy a House
State and local governments often charge taxes on property when it changes hands. The way that real estate transfer taxes are assessed varies from one location to another. In some jurisdictions, the buyer pays real estate transfer taxes. In other areas, the seller pays taxes or the two parties split them. If you have to pay real estate transfer taxes when you buy a house, you will be able to include them in your home’s cost basis, or the value of the house that’s used for tax purposes.
If you have money in a retirement account and you would like to put some of it toward a down payment on a house, you need to understand the potential tax burden. Under some circumstances, you may be able to make a withdrawal from a retirement account without paying taxes, but you can face a hefty tax penalty if you don’t meet those guidelines.
You May Qualify for Tax Deductions
As a homeowner, you may be entitled to deductions that can save you money when you file your tax returns. For example, you may be able to deduct interest you pay for your mortgage, private mortgage insurance premiums, property taxes and mortgage discount points. You may qualify for a mortgage credit certificate that can reduce your tax liability, and some home improvements may make you eligible for tax credits.
Your Tax Advisor Can Provide Information That’s Relevant to Your Situation
Tax laws differ from state to state. In order to claim tax deductions, you will have to meet a series of criteria. Your income and marital status can affect your eligibility for some tax deductions.
It’s important to get information and advice that pertain to the state where you plan to buy a house, as well as your specific circumstances. Your tax professional can provide information that applies to you, tell you which documents you’ll need to file your taxes, give you personalized advice and answer your questions. Schedule a meeting with your tax advisor before you go ahead with a home purchase.
