Tax Deductions for the New Homeowner
If you purchased your own piece of real estate in Manhattan during 2016, you will have some tax deductions to take advantage of when you file your tax return. What seemed like an endless search for that new home, will reward you during tax time with all the benefits of taking the leap into homeownership. Ask your accountant or tax advisor about all the deductions you are entitled to, because tax laws vary and some are more advantageous to your bottom line than others.
Here’s a list of some basic deductions to ask about to get you started:
One deduction available to you as a homeowner is for real estate property taxes you paid on your home during 2016. Your mortgage provider will send you a tax statement that shows the amount of property taxes you paid through the escrow account that they manage for you. The year-end statement should show the grand total for property taxes paid.
Homeowners can also take advantage of a mortgage interest deduction, which is claimed on the Schedule A. To get the mortgage interest deduction, your mortgage must be secured by your home. Interest you pay on a mortgage of up to $1 million, or $500,000 if you’re married filing separately, is deductible when you use a loan to buy, build, or make improvements to that specific home.
Your lender should send you a Form 1098, which is used to document the points that you paid for your loan. If you did not receive this form, you can locate the dollar amount you paid on the HUD-1 settlement sheet, which you received when you closed on the purchase of your home. Usually prepaid interest (or points), which you may have paid at the time the mortgage was taken out, are usually 100% deductible in the year you paid them.
PMI – Mortgage Insurance Premiums
If you itemize on your tax return, you can deduct the cost of private mortgage insurance (PMI) as mortgage interest. Essentially, you can treat the amounts you paid during 2016 for qualified mortgage insurance as home mortgage interest when you file. The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006. Speak to a tax professional to determine if this applies to you.
All of those improvements you made to your home in 2016 that provided for greater energy efficiency might qualify for the residential energy tax credit. The credit is filed on the IRS form 5695 with your tax return. This credit has a lifetime cap of $500 (less for some products), so if it is a deduction you have utilized previously, you’ll have to subtract prior tax credits from that $500 limit.
Following are some energy improvements that may qualify you for the tax credit:
• Windows, doors, and skylights
• Roofs (metal and asphalt)
• Heating, ventilation, and air conditioning
• Water heaters (non-solar)
Remember, use an accountant or other tax specialist to get all the deductions you can as a new homeowner of real estate in Manhattan. You’l be the envy of all those friends who are still renting. When they’re ready to buy, give them the name of Manhattan Real Estate and we’ll find them the perfect home, too.