A few notes on first-time homebuying things, in case I can teach people some handy things and save some money (you'd be surprised what people may or may not know about these things, so I'm just gonna shotgun it until I'm bored):
Mortgage interest on up to $1 million of debt (including prepaid interest points), interest on home equity loans/line of credit, property taxes (including the prorated property taxes you pay at closing), mortgage insurance premiums (not including the VA funding fee, unless I'm mistaken), and loan origination fees are tax deductible. However, these are below-the-line deductions, meaning you must itemize to claim them. The question then becomes, which will save me more money, the standard deduction or itemizing? Which demands another question, what else can I deduct if I itemize? Charitable contributions and state sales tax (or state income tax, but if you were stationed in a state without income tax like FL or TX and didn't change your residence to it, you're wrong) are the big ones, some smaller ones are medical expenses that exceed 10% of your AGI and miscellaneous unreimbursed job-related expenses that exceed 2% of your AGI. If you saw that last one and thought about writing off an iPad Pro and ForeFlight, you're wrong. But now I'm down a rabbit hole, let's go back to mortgage interest.
If you're not a finance minor, here's a rundown on how interest works, and how it affects how much you'll be able to deduct. Say my 30-year fixed mortgage at 3.5% has a starting balance of $200,000. If you throw all that shit into the
Bankrate calculator, it'll show you your monthly payment broken down for all 360 payments. Running my numbers, my first month's payment includes over $600 of interest, whereas the very last payment includes like $3 of interest. So I'll pay like 6 grand in interest in the first year and less than 200 bucks in the last. So early on, the mortgage interest deduction is a huge deal. Assuming a 25% tax bracket, 8 grand in interest deductions alone saves me 2 grand. The standard deduction is like $6,300 dollars, so right off the bat for me, it's obviously better to itemize by at least $425 ([8,000-6,300]*0.25).
And then there's Homestead. No, not KHST, the Homestead exemption. In Florida, doing this paperwork reduces the taxable value of your home by up to $50,000, thereby reducing the amount you pay in property taxes.
So you can reduce property tax, you can deduct it. What's next? Straight up not paying it, if you're deployed in support of OIF, OEF, or Operation New Dawn. If you're deployed half the year, you don't owe half the tax you would have owed. Not sure if it's available outside of Florida.
Then there's something called the Mortgage Credit Certificate, which I didn't know about until about like three days ago, so it may be too late for me to use it, I'm still looking into it. But in Florida, this means that for first-time homebuyers, you get a tax credit for mortgage interest instead of a deduction. If you're not familiar with the difference, a credit is like four times better than a deduction. In fact, it's exactly four times better if you're in the 25% tax bracket. Subject to certain limits of course.
What else, what else.....OH. Save ALL your receipts on home improvement things, because they increase the cost basis in your home, thereby reducing the taxable profit when it comes time to sell your home. Improvements do not include repairs; improvements add value to your house, repairs basically get the house back to where it already was.
Moral of the story: all this shit is complicated, so do what I'm about to do and find a reputable tax preparer to run the show if your days of using the 1040EZ are over. Keep ALL the records and receipts. Shop around. And to paraphrase Ronald Reagan, trust but Google that shit.
