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HomeGain Library - Buyer Resources
Taxes
- Are property taxes deductible?
- How do property taxes work?
- What is an impound account?
- Where can I learn more about appealing my property taxes?
- Are seller-paid points deductible?
- Are taxes on second homes deductible?
- What home-buying costs are deductible?
- Where do I get information on IRS publications?
How can owning a home cut my income taxes?
Owners are entitled to write off mortgage interest and property taxes. However, you can only take these deductions if you switch from the standard deduction, which all taxpayers are entitled to, to itemized deductions. If your itemized deductions, including mortgage interest and property taxes, do not exceed the standard deduction amount, you are better off taking the standard deduction. Not all owners get a tax break from owning their homes.
Are property taxes deductible?
Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes.
How do property taxes work?
Property taxes are what most homeowners in the United States pay for the privilege of owning a piece of real estate, on average 1.5 percent of the property's current market value. These annual local assessments by county or local authorities help pay for public services and are calculated using a variety of formulas.
What is an impound account?
An impound account is a trust account established by the lender to hold money to pay for real estate taxes, and mortgage and homeowners insurance premiums as they are received each month.
Where can I learn more about appealing my property taxes?
Contact your local tax assessor's office to see what procedures to follow to appeal your property tax assessment. You may be able to appeal your assessment informally. Mostly likely, however, you will have to go through a formal tax-appeal process, which begin with an appeal filed with the appropriate assessment appeals board.
Are seller-paid points deductible?
As of Jan. 1, 1991, homeowners have been able to deduct points paid by the seller. This deduction previously was reserved only for points actually paid by the buyer.
Are taxes on second homes deductible?
Interest and property taxes are deductible on a second home if you itemize. Check with your accountant or tax adviser for specifics.
What home-buying costs are deductible?
Any points you or the seller pay for your home loan are deductible for that year. Property taxes and interest are deductible every year.
But while other home-buying costs (closing costs in particular) are not immediately tax-deductible, they can be figured into the adjusted cost basis of your home when you go to sell (any significant home improvements also can be calculated into your basis). These fees would include title insurance, loan-application fee, credit report, appraisal fee, service fee, settlement or closing fees, bank attorney's fee, attorney's fee, document preparation fee and recording fees.
Where do I get information on IRS publications?
The Internal Revenue Service publishes a number of real estate publications. They are listed by number:
- 521 "Moving Expenses"
- 523 "Selling Your Home"
- 527 "Residential Rental Property"
- 534 "Depreciation"
- 541 "Tax Information on Partnerships"
- 551 "Basis of Assets"
- 555 "Federal Tax Information on Community Property"
- 561 "Determining the Value of Donated Property"
- 590 "Individual Retirement Arrangements"
- 908 "Bankruptcy and Other Debt Cancellation"
- 936 "Home Mortgage Interest Deduction"
