All Things Tax

All Things Tax

Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.

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Esteemed Pioneer
Posts: 28
Registered: ‎10-11-2016
Accepted Solution

Bought a house at end of Dec 2015 - how does it affect taxes?

We bought a house at the end of December 2015, but didn't begin paying P&I until January 2016. We put down a deposit and paid fees such as escrow, homeowners insurance, etc.

 

Is this taken into account in my tax forms in any way? Perhaps deductions of some sort? Thanks!

Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: Bought a house at end of Dec 2015 - how does it affect taxes?

Hi oharel,

 

Again, welcome to the community.

 

Congradulations on the house.

 

When you purchase a house there are certain things that are deductible and these deductions are all taken on Schedule A (Itemized Deductions).

 

Before going any further, let'e be sure to mention that if your standard deduction is greater than the total of your allowable Schedule A deductions then you will benefit more from your standard deduction.  For individuals the standard deduction amount is $10,450 for 2016, and for those who are filing jointly it's $20,900.

 

Items that are deductible when you purchase a house include:

  • Mortgage Interest
  • Points Paid Down
  • Mortgage Insurance
  • Assessment fees for public works (such as sidewalks) that were already in exsistence when you bought the house.
  • Real Estate Taxes

The mortgage interest, mortgage insurance, and real estate taxes are deductible every year for as long as you are paying them.

 

Usually if you buy a house part-way through the first year, especially if you bought the house in December, you will not claim a large amount of deductions from it for that year (if any) because you will not have paid a whole lot of interest on it yet and depending on where you live you may not have had to pay annual real estate taxes on it yet.  The second year of ownership (for you next year) will be a year that you'll probably be itemizing your deductions becuase you will pay a great deal more interest that year then you will have for your first year, and you will pay a full years worth of the other deductible expenses in your second year.

 

Even so I do recommend that you meet with an experienced tax professional when you're ready to complete your next tax return so that they can go over everything with you in person and so that you can be sure that if you are able to itemize your deductions that you get a deduction for everything that it's possible to deduct.

 

Finally, on another topic, when you sell the house later on in your life, provided that you've lived in it (it was your primary residence) for at least two years out of the last five and that you've owned it for at least two years out of the last five, you will be able to exempt the first $250,000 worth of gain on the house ($500,000 if you file jointly with your spouse at that time).

 

I do hope this helps you out.

Louis,

Senior Tax Advisor (Tampa, FL)

Esteemed Pioneer
Posts: 28
Registered: ‎10-11-2016

Re: Bought a house at end of Dec 2015 - how does it affect taxes?

Great, thanks so much!

 

The 1040 states the following for Standard Deduction, which is a bit different from your numbers above: Single or Married filing separately, $6,300; Married filing jointly or Qualifying widow(er), $12,600; Head of household, $9,250.

 

I understand that if I have a home office, these mortgage related deductions might be affected somehow?

Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: Bought a house at end of Dec 2015 - how does it affect taxes?

You're quite welcome.

 

And yes I apologize as I gave you the filing requirement amounts (standard deduction + personal exemption amount) for 2016.  The standard deduction amounts for 2016 are $6,400 for single taxpayers, $9,350 for head of household, and $12,800 for married taxpayers filing jointly.

 

For 2015 tax returns the standard deduction amounts are $6,300, $9,250, and $12,600 as you mentioned.

Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: Bought a house at end of Dec 2015 - how does it affect taxes?

oharel,

 

So if you have a qualifying home office then certain home-related dedcutible items such as your mortgage interest are split between personal and business deductions.  The split depends on how much space you use exclusively for business.

 

For example, if you have a 10,000 square foot house and you have 1000 square foot room that serves exclusively as your office for your business then 10% of the mortgage interest, etc. would be deductible as a buiness expense.

 

Of course business expenses are deductible on Schedule C if you're self-employed.

 

You can find more information on the home office deduction in Publication 587.

 

Louis

Esteemed Pioneer
Posts: 28
Registered: ‎10-11-2016

Re: Bought a house at end of Dec 2015 - how does it affect taxes?

Another great answer - thanks so much!

Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: Bought a house at end of Dec 2015 - how does it affect taxes?

You're quite welcome.

Pioneer
Posts: 2
Registered: ‎10-02-2017

Re: Bought a house at end of Dec 2015 - how does it affect taxes?

My question is this. I'm planning to retire in another state, but am home shopping now with intent to purchase prior to retirement this year. How will this be treated tax wise as I've been told this will be a 2nd home?  I still have about 2 more years to retire, but can do it at anytime now. I'm 62. 

California current state residing in.

Nevada is the state I'm moving to. 

Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: Bought a house at end of Dec 2015 - how does it affect taxes?

Hi Vegasbound1,

 

 

Welcome to the H&R Block community.

 

So if you buy a house and you still own your first one then yes you have a secondary home.  You can still take the usual deductions such as mortgage interest and real estate taxes just so long as you live in the home at some point during the year, even if you're just there for a week or two on vacation.  Then, once you retire and move to the new house and you begin living there on a permanent basis it will become your primary residence and you'll still get all of the homeowner deductions.

 

In addition tot he deductions you get each year that you own the home, you also can deduct mortgage interest & real estate taxes that you pay at closing, as well as points that you paid down.  Note that points paid down can be deducted all at once if certain criteria are met but otherwise must be spread out over the life of the mortgage.

 

All of the above are great because they mean lower tax liability, or the possibility of a slightly higher refund.

 

When you sell your old house you may also not have to pay taxes.  It depends on if you have any gain on the sale.  If you have a gain on the sale then you can exclude the first $250,000 of the gain if (1) you owned the home for two out of the last five years, (2) you lived in the home for two out of the last five years, and (3) you have not taken an exclusion of gain on a home sale in the last two years.  The amount you can exclude doubles to the first $500,000 if you are married & filing jointly.

 

If you have any other questions I'll be glad to help.

 

Louis,

Senior Tax Advisor (Tampa, FL)

Pioneer
Posts: 2
Registered: ‎10-02-2017

Re: Bought a house at end of Dec 2015 - how does it affect taxes?

Thank you Louis,

I'm only a renter and don't own a home here in California. I'm buying in Nevada and will continue to work in California for another year or two until I retire. My wife and daughter will live in the Nevada home and I will commute monthly back and forth as my employer provides housing per-diem at the job site. How does this affect the tax situation as far as the state taxes go?