 Internal Revenue Service IRS tax news know what's deductible after buying that first home sweet home Hey, I know what's been deducted after buying my home IRS. I don't need to hear it from you I know it's for example the copious amounts of interest on pain has deducted what little compassion I once had for bankers. I'll tell you that that's what's been deducted and the mammoth mortgage I took on has deducted my will to live Anyways, first and attempt at a joke Uneasy lies the head that wears the crown Heavy lies the head that wears the wig of curly bangs You see this is why we don't have Kings anymore Sons of Kings can be cruel and stupid as you well know. I mean, can you imagine Joe Biden as King saying something like that? He's like come on man Uneasy lies the head that wears the crown Sometimes the crown weighs rather heavy And it's like okay when you go to bed mr. King Biden crown is heavy, but somebody's got to wear it Yeah, you got a fish stick and a remote control Take off the crown I can't see it. Use your open high friend. Oh, yeah, I can see it now Honestly, it's like dealing with my brother's kids over here. It's like I'm sitting here playing cards with my brother's kids or something however Maybe uneasy lies the head that wears the crown refers to the repeated lies coming out of a head that wears the crown So somebody should tell them Lion makes every head uneasy Whether it has a crown on it or not Oh my god, you're right Lying is wrong. I'd know that if only I'd paid attention to anything that's ever happened to me before IRS tax tip 2022-138 September 8th 2022 Making the dream of owning a home a reality is a big step for many people Whether a fixer upper or dream home ownership is a milestone that can come with a learning curve First time homeowners should make themselves familiar with authorized deductions programs that can assist with home ownership and the use of housing Allowances that can be beneficial when it comes to home ownership The IRS considers a home to be a house condominium Corporative apartment mobile home houseboat or house trailer that contains a sleeping space toilet and cooking facilities So when we're thinking about kind of the deductibility of certain things related to a home Obviously, we have to define the home. It's a fairly wide Definition of the home. So if you're living in an area where you're like, I'm not sure if this qualifies as a home Or not then sometimes you might have to clarify on that So most home buyers take out a mortgage loan to buy their home and then make monthly payments to the mortgage holder This payment may include several costs of owning the home The only cost the homeowner can deduct are state and local real estate taxes So note that when you're buying the home the taxes complicate a large of a lot of large decisions, right? So a home is going to be a huge investment decision for an individual typically and The taxes are going to complicate it a lot because the tax implications on a big purchase, for example Can be substantial. One of the big things that you end up paying with a home are taxes typically and that's typically come in the form of The taxes for property taxes for example, those taxes are state taxes and local taxes They're not federal income taxes when we're talking from the perspective of the IRS We're focusing in on federal income taxes. So obviously the state and local taxes are going to be important in the home Purchasing decision because you're gonna have to pay the state and local taxes But they may also have an impact on the federal side of things as well, which is again is a bit of a confusing thing It's kind of like if they started over it would kind of make sense if they didn't do that kind of thing It's kind of weird, but that's how it is So you might be able to deduct some of the state and local taxes However, they're currently subject to a limit of the $10,000 limit This has been a big kind of issue that has been changed over the last couple of years And they're still debating this tax and this limit because obviously the deduction of state and local taxes are a benefit to high-tax states If you could deduct them on the federal side in essence leading to the federal government subsidizing states with high taxes Like California and New York for example So you can see that that law still could be under debate But there's that cap on how much can be deducted for the state and local taxes that you got to keep in mind And running projections is often the best way to really kind of get a grasp of this You got the home mortgage interest So note that when you get a mortgage a lot of times real estate brokers used to just have the adage of You need to buy a home because the government's trying to incentivize you to buy a home And why would you not do it if you're gonna get deductions of interest and this taxes and so on and maybe at one time that was more a little bit more feasible or or But nowadays You really want to do the projections and realize that it's only the interest that's going to be deductible So you're still paying the interest It's just that the loan interest that you're paying is going to be a little bit lighter Given the fact that you could get a tax benefit also realize however That the amount of deduction for the tax benefit may not be exactly all the interest that you pay Even though you get to deduct all the interest because it's an itemized deduction and if before buying the home You had a standard deduction Then there could be a substantial gap between the itemized deductions and the standard deductions and and that gap Really represents, you know benefit that you would have got you know anyways You're not really getting that benefit simply from the interest So you want to again take that into consideration by doing projections Typically if you can get a hold of tax software or tax professional to help you if the taxes are a major component in your purchasing decision Then then you want to make accurate projections also make sure that you understand that the interest will go down over the time Even though your payments will remain the same Because that's how the loans work more of it will be applied to interest at the beginning at the end of the loan much More will be applied to principal as your payments are applied to principal That's good because it lowers the loan that you owe, but it's the that's not the deductible part So there you go mortgage insurance premiums may also be deductible. So taxpayers must file Form 1040 US individual income tax return or form 1040 SR US income tax return for seniors and itemized their deduction So the itemized instead of the standard the standard deduction was increased a few years ago Then what it was before so there's a fairly Large standard deduction which is usually good for lower-income individuals or just normal people that are taking the standard deduction Because they get they get the bigger deduction really the itemized deductions are usually the ones that more well-off people are gonna Gonna get more and more Capacity or advantages from as your as your income grows a lot of the times But that also means that there's a bigger gap between the standard deduction and the itemized deduction the bent the added benefits You're gonna get from From the mortgage interest and the and the taxes for example. So to deduct home ownership expenses However taxpayers can't take the standard deduction if they itemize so non deductible payments and expenses homeowners can't deduct any of the following Insurance other than mortgage insurance including fire and comprehensive coverage and title insurance the amount applied to reduce the principle of the mortgage Wages you pay for domestic help depreciation the cost of utilities such as gas Electricity or water most settlement or closing cost for fitted deposits down payments or earnest money interest or Wi-Fi system or service homeowners Association fees condominium association fees or common charges home repairs So these are the things that you typically cannot deduct now There could be certain circumstances where you like you have your home office for example or something like that Where you might have some of these items that are applied to your business and therefore that way be deducted But if it's being used as your home then these are personal items The home is a little bit of a tricky thing for taxes because the taxes we have an income tax on The federal side of things meaning we get taxed on our income You would expect it would make sense for us to be taxed basically on the net income Instead of the gross income when possible. So for example on a business You get to deduct the business expenses because it doesn't make sense to deduct the gross income for one business That doesn't have a lot of expenses maybe and another business that has a whole lot of expenses, right? You should be deducting you should be taxing the net income But you don't get many deductions when you're an employee Because that the assumption is that the things that you needed to be provided in order to work as an employee Are are given to you by the employer? But the general rule would be you should be able to deduct things if you needed to consume those things in order to Generate income because the income tax should be based on the net income not on the gross income Which we can see with the business deductions now the home is totally out of whack in and of itself Then that then the code gets all distorted because of all these special interests and things that they want to do One of them being the home ownership so in order to incentivize home ownership They basically have these kind of advantages for the homeowners like an exclusion and like the the interest being deductible on the purchase of the home and so on and so forth and That's a little bit weird because the home is like personal purchase It's not something that you purchased in order to generate revenue You might say well I need the home to live in in order to go to work that makes sense But still it's it's not really directly applied to your business. It's a personal thing. So that's why In and of itself It's already kind of outside the box of what you would normally think of as like a deduction Which would be a business related something you needed to do in order to generate Revenue so these other things that are related to the home you'd say well what if I can deduct the interest Why can't I deduct this stuff? Well, it's because the home interest is already outside the box all this stuff is basically Personal even the depreciation is personal that to decline the value of the property. It's still a personal home Generally, it's just weird that you get the interest deduction right the cost of the utilities the utilities and gas that you're paying isn't for business It's for personal use. That's why it's not generally deductible unless it's you have a home office most settlement costs Forfeited deposits the Wi-Fi system again if you used it for business You might be able to deduct it on a schedule C But if you're just personal Wi-Fi net flick watching then that's a personal right. It's not deductible Okay mortgage interest credit the mortgage interest credit is meant to help Individuals with lower income afford home ownership those who qualify can claim the credit each year for part of the home mortgage interest Paid a homeowner may be eligible for the credit if they were issued a qualified mortgage credit certificate From their state or local government the MCC is issued only for a new mortgage for the purchase of a main home The MCC will show the certificate credit rate the homeowner will use to figure their credit So it will also show the certified the certified indebtedness Amount and only the interest on that amount qualifies for the credit So homeowners assistance fund the homeowners assistance fund. There's a link to that here program Provides financial assistance to eligible homeowners for paying certain expenses related to their principal residence To prevent mortgage delinquences defaults foreclosures a loss of utilities or home energy services and also Displacements of homeowners experiencing financial hardship after january 21st 2020 ministers are military housing allowance Ministers and members of the uniformed services. There's a link to that here Who receive a non-taxable house allowance can still deduct their real estate taxes and home mortgage interest They don't have to reduce their deductions based on the allowance more information can be found at the links below You got publication 5 3 0 tax information for homeowners publication 9 3 6 home mortgage interest deduction Now just a last piece of advice on the home purchasing Remember that when you when you're purchasing the home you if you're doing it just to save on taxes That's not typically going to be a good strategy You're going to want to buy the home for either personal use or investment use or whatever And then make sure you do the projections also be careful when you're talking to anybody That's going to be making money through your home purchase like brokers and stuff like that because clearly They not that they're not honest. They're clearly but they have an interest in you purchasing the home So you would think that they would be biased and if you hear someone saying that you should purchase a home just because You get tax breaks on it be very skeptical of that line of reasoning because it's not always true And the person that's saying it might have a vested interest in you doing that or maybe they they're justifying their own You know purchases and actions and that's fine But you want to make sure that you're making the decision based on the facts And the way to make the decision because of all this complication With the government trying to incentivize which basically subsidizes in some ways and often increases prices and whatnot It really makes the whole picture more complicated possibly not actually more beneficial So what you want to do is actually run projections So how much how much are you actually going to get a benefit? Don't just look at the deduction you're going to get from the interest but Put that deduction into tax software and see what the difference is from one year to the next Taking the deduction versus not taking deduction taking an itemized deduction versus taking the standard deduction And and so on run run the numbers run the projections and possibly get an independent opinion From like a cpa or accountant who's not involved who's not benefiting From your home purchase in some way so that you're paying just for their opinion That is unrelated in any case to the actual purchase. Those are just some thoughts But there's will be a link to this here. There'll be a link to this in the description