Greet The Taxman With Homes For Sale In The Central Valley

Monopoly game pieces on top of tax forms

One of the great advantages of buying one of our homes for sale in the Central Valley are the tax deductions you suddenly gain, which puts extra cash in your pocket. But you need to document your spending if you want the IRS to show you the money.

January is an excellent time to start gathering all the paperwork, if you bought your house last year, or to start creating a filing system for it, if you’re planning on buying property this year. The following are just some of the tax breaks you’re entitled to with your purchase.

Mortgage Interest
This is the biggie with deductions amounting to thousands of dollars annually because most of your monthly payment at first goes to mortgage interest and not the principle. Every penny of interest is deductible unless your loan totals more than $1 million, which then puts limits on what you can deduct. If you happen to own a second home, then interest payments on that property are deductible as well. You’ll typically receive a statement from your lender at the end of the year detailing your total interest payments.

Even if you paid cash for your house, you can still deduct interest if you take out a line of credit or home equity loan. You would then be able to use the money to pay for other things, such as renovations to improve your property, a student loan, or for investments that pay more than the interest. Avoid the temptation to use such loans for temporary expenses, such as to pay off credit cards, or you’ll dig yourself into a deeper debt hole.

Principal Mortgage Insurance
If your lender wants you to buy Principal Mortgage Insurance, or PMI, as a condition of the loan, those payments are also deductible. Lenders typically require PMI when your down payment is less than 20 percent of the sales price. Deductibility depends on your income with households earning over $100,000 per year phasing out some of the amounts.

The one-time fee, or points, you pay to get a better rate on your home loan are also deductible. Certain qualifications apply if you want to deduct the full amount in the year you spend it. You need to use the loan for buy your primary home and the points are in the usual range. Points are deductible on home equity loans as well but only if the loan pays for remodeling or renovation that improves the primary home. If the loan is for a second home or used for something else, such as for a student loan, you can still deduct the points but the deduction must be parceled out over the life of the loan.

Another big deduction that can amount of thousands of dollars annually are property taxes. To ease the strain on your budget, the full amount is divided by 12 and added to your monthly payment. The money then goes into an escrow account, which is paid to the state of California. Amounts sitting in the escrow account are not actually deductible. Only the money that is actually paid in taxes can be taken off.

If you want more information on the advantages of owning a home or want to check out our offerings in person, please contact us.

Lisa Walker