Question

I purchased a house this year. Would I qualify for any tax deductions on a home purchase?

Answer

Unfortunately, most of the expenses you paid when buying your home are not deductible in the year of purchase.

The only tax deductions on a home purchase you may qualify for is the prepaid mortgage interest (points). To deduct prepaid mortgage interest (points) paid to the lender if you must meet these qualifications:

  • Your main home secures your loan (your main home is the one you live in most of the time).
  • Paying points is an established business practice in your area.
  • The points you paid weren’t more than the amount usually charged in that area.
  • You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.
  • The points you paid weren’t for items that are usually listed separately on the settlement sheet. Ex: appraisal fees, inspection fees, title fees, attorney fees, or property taxes
  • The funds you provided at or before closing, including any points the seller paid, were at least as much as the points charged.
  • You didn’t borrow funds from your lender or mortgage broker to pay the points.
  • You used your loan to buy or build your main home.
  • The points were computed as a percentage of the principal amount of the mortgage.
  • The amount shows clearly as points on your settlement statement.

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Other fees that you paid before or at closing aren’t deductible. However, they’re included in your basis of the home. These fees include:

  • Title insurance
  • Appraisals
  • Abstract fees
  • Recording fees
  • Surveys

You can deduct some of the ongoing payments you make for owning your home, including:

  • Real estate taxes actually paid to the taxing authority
  • Qualifying home mortgage interest
  • Mortgage insurance premiums

You can’t deduct these:

  • Property insurance
  • Depreciation
  • Utility payments

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