How to Buy a House as a Tax Deduction

Unless you are buying a house that you intend to donate in its entirety to a charitable organization, you cannot use a house as a complete tax deduction. However, you can deduct many of the expenses associated with the purchase of a home. Tax laws allow you to deduct mortgage interest, points and real estate taxes. You may also qualify for tax credits available for first-time home buyers and repeat home owners.

Instructions

1. Use a mortgage lender when buying a house. Deduct mortgage interest that is accrued on your loan. All interest is deductible as long as your loan is less than $1 million. Consider a home equity loan or a line of credit associated with your home because the interest is also deductible. According to IRS.gov, equity debts of $100,000 or less are fully deductible.

2. Deduct mortgage loan points that you paid to ensure a lower interest rate on your mortgage. According to IRS.gov, you can deduct points in the year you paid them if the home loan is to purchase or build your main residence. Deduct the entire amount of the points.

3. Deduct the property taxes associated with the purchase of your home. Annual real estate property taxes can be deducted every year that you own the home. Research the settlement sheet that you received at closing if this is the first year that you have owned your home. Deduct the portion of the property taxes that was allocated as your responsibility when the property was transferred from the seller to you. Deduct only your share of the property taxes.

4. Participate in the home buyer federal tax credit program. First-time home buyers are eligible for an $8,000 credit. Repeat buyers are eligible for a $6,500 tax credit. Consult your mortgage lender to complete the forms and applications to receive the credit. Even though the tax credit is not defined as a deduction, it can be used to offset other taxes that are owed.

Tips & Warnings

• Do not deduct property taxes that were placed in an escrow account for future payments. You can only deduct property taxes that you actually paid during the course of the year.

• Avoid second mortgages and lines of credit that are so large that they reduce the value of your home.

References

• Home Sweet Homeowner Tax Breaks
• The Most Overlooked Tax Deductions

Resources

• US Senate Approves Extension of Homebuyer Tax Credit