Tax deductions for new homeowners bizpals

Category Real Estate Agents

Tax Deductions for New Homeowners: What Your Clients Need to Know

Real estate agents get a great sense of accomplishment from helping clients purchase a new house—and rightly so. For many people, owning their own home is seeing their dream come true. And along with all the other benefits of home ownership, here's one your clients should know about deducting expenses related to home purchase or ownership when they file income tax returns.

Disclaimer: This article is solely a précis of information about current tax deductions that may be applicable to homeowners. For advice on filing tax returns, you should consult a CPA or an accountant.

Schedule A

If your clients have been renters and have previously taken the standard deduction when filing taxes, as new home owners, filling out their tax forms will be a little more complicated. The good news is that there are several expenses they will now be able to deduct. Schedule A is what homeowners should fill out in order to claim deductions related to home ownership. Read on to learn more about what expenses your clients may be able to claim on their tax returns.

Mortgage Interest and Mortgage Points

Being able to use mortgage interest as a tax deduction is often a factor in making a home purchase affordable for first-time buyers. Homeowners can deduct interest paid on a mortgage with a balance of up to $1 million. Mortgage points (also called origination fees) charged by a lender are also deductible. Homeowners are entitled to deduct the entire cost of mortgage points that they paid in the same tax year. Also, the cost of private mortgage insurance (PMI) is a tax deduction your clients can take on their income tax return.

Property Taxes

If your clients are first-time homebuyers, they may not realize that their property taxes are a deduction they can claim on their tax returns. According to the IRS, “deductible real estate taxes are generally any state, local or foreign taxes on real property.” Your clients cannot, however, claim any other fees levied by their local authority for improvements, assessments, etc. If your clients make payments to an escrow account and the lender pays their real estate taxes to the local authority, they should be careful to claim the exact amount paid as taxes from the escrow account to the authority during the year in question.

Moving Expenses

If your clients bought a new home due to a job-related move, they may be able to deduct some of the expenses related to the move. Your clients must have moved a distance of fifty miles or more, and the reasons for the move must be related to starting work in a new location. Even if your clients are self-employed, they may be able to claim moving expenses if the move was work-related. If your clients use moving expenses as a tax deduction, they will need to have records such as relevant bills, credit card statements and/or cancelled checks, mileage logs and receipts. In addition to the cost of shipping goods, your clients may be able to deduct travel expenses as well as storage fees for goods and personal effects for a 30-day period after the day the items leave their former home and before they are delivered to the new house.

Should Your Clients Consult an Accountant?

If your clients have a good grasp of what deductions they are allowed to take, a computer tax program may meet their needs. If, on the other hand, your clients feel nervous about filing a claim for the first time as homeowners, or are concerned that they may be missing some deductions that they are in fact permitted to take, you may want to advise them to consult an accountant or a CPA. A consultation with a professional tax preparer can help to clarify many of the details that homeowners filing taxes for the first time can find confusing. You may already have a trusted accountant to whom you refer clients. If not, you can use the BizPals service directory to find top accountants for your clients.
Have you been able to help clients file their tax returns as first time as homeowners? Share your tips in a BizPals status update!