FAQ: What do I need to know about taxes now that I’m finally a homeowner?

First of all, congratulations on getting the home! This FAQ is for you, for homeowners who have been in a home for a little while, as well as those currently looking at their first home (to get an idea of the savings you can expect by being a homeowner!).

To make the most beneficial deductions, say goodbye to the simple 1040EZ. You’ll find most of the deductions in Schedule A, the Itemized Deductions form. Some of the big deductions include Mortgage Interest, Property Taxes, Private Mortgage Insurance (if the home is purchased after January 1, 2007) and Discount Points.

If you refinanced your home this past year, you cannot deduct these closing costs all in your taxes right now. It must be spread out over the entire life of the loan.

What you need:
* Property Tax Statement, including Supplemental Tax Statements. If you don’t have it, you can get an estimate online if the property is in Los Angeles County. Contact me for the link to the specific webpage in the Assessor’s Website.
* 1098 Statement from your mortgage lender. This shows the interest you paid the lender. You cannot multiply your monthly payments and assume that is what you put in Schedule A. You only can deduct the interest portion.
* 1099-INT Statement from your mortgage lender. You get this if you have an escrow account with your lender to pay for insurance and property taxes. This statement shows what the lender paid you for keeping your money in this separate account. Information on this screen goes to Schedule B on the Interest portion (not the Dividend portion).
* HUD-1 from your closing paperwork. This 1-2 page document lists all the fees and details for the loan in a tabular format. If you do not have this, contact me if I helped you find the home, otherwise, contact your lender.

Additional Deductions: If you have a home equity loan or line of credit, interest on such loans of up to $100,000 is deductible. It doesn’t matter how the money is used, as long as it is secured by your residence. If you moved to take a job, you may be able to deduct moving costs and relocation expenses. If you’re self-employed, you may be able to take home office deductions (be sure you measure the area you use regularly and exclusively for this!). Lastly, if you make any improvements to the home to alleviate a medical condition, like installing a handicap ramp, you may be able to deduct these under medical expenses.

What’s not deductible: homeowner’s insurance, HOA dues, additional payments, home repairs, depreciation, appraisal charges, title insurance, credit report fees, and state and local "recordation" transfer taxes (as some states call them). I read somewhere that local assessments that pay for neighborhood improvements such as Mello-Roos is NOT deductible.

Standard deductions may still be the best move for some homeowners, especially if the home was purchased towards the end of the year. Mortgage interest and other items on the Schedule A may remain less than the standard deduction. Contact your tax consultant for further details on your particular situation.


For further reading, please see IRS’ Publication 530 at http://www.irs.gov/publications/p530/index.html.

For a helpful recordkeeping chart for income and Schedule A, please contact me at changhomes@gmail.com.

Disclaimer: Mr. Chang is NOT a CPA or Tax Attorney. Any information and advice he provides are to the best of his ability and understanding, but is not guaranteed. If any topic is of importance to you in your home buying or home selling needs, please consult your attorney or CPA. If you need a referral to a qualified professional, please let Wayne know. He loves serving his community and will be happy to recommend those he has worked with.

Questions answered in this column were asked by my clients, past clients, or prospective buyers and sellers. The questions were answered when they were asked, and they were notified if the question is a candidate for the FAQ column. Questions are chosen based on interest to a wider audience, timeliness to the current market, and possibly other factors. Those whose questions are featured in this column get a gift card to their favorite store, restaurant, mall or movie theatre in the Tri-Valley area if they allow me to publish their name or initials and the city in which they live in this column. You can email your questions for a prompt response to changhomes@gmail.com.