What Tax Deductions Do I Get As a Homeowner?
Dear Ali:
Thanks for the info on vacation home taxes, but I own just the one regular old home. Do I get tax deductions, or are those reserved for Richie Riches?
A: If you own your own home, the property taxes that you pay are tax deductible. Even if you don't itemize, you can claim a deduction. (I know you're reading an article about taxes, but pay attention, 'cause this is a fairly new wrinkle in the tax code.) The blogger thefinancebuff explains how to take a deduction without itemizing by checking box 39c on your 1040.
Of course if you own a home, you're probably going to want to itemize (which means you're going to file more forms to list the deductions that you can claim, instead of just taking the "standard" deduction, which is a nice round number that the government gives you). The main form to file when itemizing is Schedule A, which allows you to list property taxes that you paid. If you are paying for your home with a mortgage, you can also deduct mortgage interest here.
However, you can only deduct amounts that you have already spent. In the Washington Post, Michelle Singletary points out that you're not allowed to deduct the interest portion of mortgage payments that you haven't made yet -- so if you're behind, no tax break there.
Finally, if you bought a house by putting only a little bit of money down, you're probably paying PMI, which stands for private mortgage insurance. Normally you can't deduct the cost of insurance payments (unless they're on an investment property), but Congress passed a law saying that you can treat PMI so that it's tax-deductible. Go ahead and click that link and read the rules, because that deduction phases out as your income rises.
If you're a first-time homebuyer, I've got more posts on the tax credit, but basically you might have a choice of taking the credit on your 2008 taxes for a home purchase in early 2009. (You can learn more at makinghomeaffordable.gov, which, despite its emphasis on families in its stock photos, is supposed to apply to single people, too.
The retro nature of the tax credit is cool, but as a result, a lot of personal finance mavens are advising clients to file an extension for this year. Bad idea. If your tail is dragging at work this week because you've been up late working on your taxes, you'll get sympathy and maybe donuts. Your taxes, however, only get harder if you file 'em in May.