You put a lot of effort into finding the right house, and now that your closing is just days away, you're finally ready to start calling your new place home. Before this can happen, however, you
Taxes And Your Home Or Property
With the U.S. tax season still so fresh in our minds, as homeowners we are reminded of all the taxes we pay on our properties. But what exactly are property taxes? Are there any tax breaks for homeowners? Below you will find useful tax information that may help you should you own a property or plan on buying one this year.
Property tax (also called millage tax) is specifically a levy on the value of a property. Property tax can be levied by a number of governing authorities: the national government, a state, county, geographical region or municipality. In the United States, it's very likely that your property will be taxed by a number of jurisdictions, most likely by your local governments (city or town, and the county you live in - but this is specific to each state). With multiple jurisdictions taxing a property, property tax is generally referred to as property taxes because of the combination of taxes. Property taxes are calculated based on an appraisal of the monetary value of a property. For Americans, property taxes go toward supporting local schools/education, police/fire services, local governments, local infrastructure and even possibly free medical services.
Most states determine their property tax rates based on their independent state budgets, and the tax is generally paid in portions when homeowners pay their local real estate tax. Local taxes are made up of county and municipality (city or town with a local government) levies, and they're based on the assessed real estate value of a property. These taxes generally go to pay for the local infrastructure, public services, and city/county operation and administration costs. Property taxes also include school tax, regardless of whether or not a homeowner has children in local schools. School tax goes to local school districts and helps pay for public education (land and buildings, teacher salaries, textbooks, administration expenses), and depending upon where you live, school tax may even go to local community colleges.
While property taxes can be a real hit to a homeowner's pocketbook, there are tax deductions specifically available to property owners.
Tax Deductions for Homeowners
While all homeowners pay property taxes, they also have the ability to claim valuable tax breaks specifically related to property ownership. Be advised: it is always best to get help and have your questions answered by a tax professional who is up-to-date on all current U.S. tax codes.
Property taxes are eligible for a tax deduction on your personal taxes. If you purchased a home, you can also include any taxes you reimbursed the seller for (unless they were delinquent). But be forewarned: property taxes can only be deducted if you itemize your tax return. For many homeowners, property tax payments will be included in your monthly loan payment, so you should receive an annual statement that will have the total property taxes you have paid over the year.
Again, this deduction is available if you itemize your return, but in the U.S. if you own a home, condominium, co-op, mobile home, or boat/recreational vehicle that you use as a residence you can deduct the interest you pay on your mortgage. You should get a 1098 from your mortgage lender, which will state the total mortgage interest paid for the year.
Did you buy a home or are you going to buy a home this year? If you plan on having a mortgage loan, you can deduct any points (also called discount points) you may pay directly to the lender in exchange for a reduced loan rate. You are allowed to deduct the points the year you paid them if: the loan is for a primary residence; was used to buy, improve or build a home; you live in an area where paying points is common; the buyer's settlement statement clearly outlines the points; and the amount of cash you put toward the purchase of the home is at least equal to the amount charged for the points on the loan. If you refinance your mortgage loan you may also be eligible, but check with a tax professional to make sure.
For the 2016 tax year the federal government offered two energy tax credits: the Residential Energy Efficiency Property Credit and the Nonbusiness Energy Property Credit. The credits are available to homeowners that improved the energy efficiency of their properties by either installing alternative energy technologies (solar, wind, geothermal, or fuel-cell) or through upgrading current home equipment or materials to be more energy efficient. If you are thinking about upgrading some of your home's systems to alternative energy sources, or you want to update your windows, insulation, water heater, furnace or central air system to a more energy efficient technology, you may be able to claim a tax credit for the improvements (it is best to have a tax professional determine your eligibility for this credit should you make the improvements).
Casualty losses are property damages during the year that are sudden, unexpected or unusual - anything from a car crashing into your property to a hurricane, tornado, or even vandalism. There is a process to go through, but casualty loss deductions can be used when your insurance company does not reimburse you for the damage, and the loss deduction has to exceed 10% of your adjusted gross income, so it is not for minor issues. If you find your property has major damage, and you are hit with a large out-of-pocket payment toward it, you may be eligible for a casualty losses deduction on your taxes.
Taxes can be confusing, especially when you are a homeowner. If you have any questions, contact a tax professional who is knowledgeable on all property tax deductions and credits available to homeowners.
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