Do you want to find out what expenses you can deduct as a new homeowner? No one likes paying taxes, so making the most out of tax deductions when buying a home can be appealing. Though there used to be better deductions available in the past, it could still be worth your while. You will have to file your tax return with itemized tax deductions to claim.

There are many home buying tax deductions that could potentially reduce your tax bill by thousands. The IRS standard deductions are more substantial now than they used to be, meaning that it may not be worth the trouble of itemizing your expenses. Standard deductions for 2020 were $24,800 for married couples and $12,400 for single people. The head of household deduction was $18,650.

If your real estate deductions are more than the standard amount allowed, it is worth your while to itemize. If not, stick wit hthe standard tax deduction. Let's look at he deductions available to home buyers.

MOVING EXPENSES 

To qualify to get moving expenses deducted on your federal income tax return, you must meet three IRS requirements as follows:

    1. The moving expense must be closely tied to the start of new employment. Also, you are only able to deduct the costs you accumulated within a year of when you started your new job. If you don't move closer to work within the first twelve months of the new job, you'll lose the ability to deduct the moving expenses.

    2. In order to qualify, the new job would have to add at a minimum fifty miles to your commute if you stayed in your previous home. For example, if your last employment required you to commute ten miles from your former job, your commute to your new work would need to be at least sixty miles from your previous home.

    3. After the move, you have to work full-time at your new job for a minimum of thirty-nine weeks in the first year of employment. If you are considered self-employed, you will need to work full-time for at least seventy-eight weeks during the first two years of your new job.

So, what can you deduct? Some of the allowable moving expenses could possibly include the following:  

• Packing and shipping your belongings as well as associated expenses such as getting moving boxes or other items necessary to relocate.
• Temporary housing during your movie, such a hotel or motel.
• Transportation during moving or renting a moving truck.

Make sure that you can document any of the deductions you plan on taking. The Internal Revenue Service suggests that you keep bills, receipts, credit card statements, canceled checks, and any mileage logs. Make sure you stash these records away somewhere safe in case an audit happens, or the IRS has any questions.

 MORTGAGE PAYMENTS 

When paying back your mortgage, some of the monthly payment is for the interest on the loan. You can take this interest payment as a tax deduction. The amount you can claim depends on when you started the mortgage.

If you took out the mortgage before October 14, 1987, you might be able to deduct all the interest paid. If the loan began between October 14, 1987, and December 15, 2017, you can claim deductions up to the value of $1 million. For mortgages which started on December 16, 2017, or later, deductions of up to $750,000 can be made. Married couples that are filing separately will only be allowed to claim half the amount however.

HOME EQUITY LOANS  

It used to be the case that you could claim interest paid on equity loans regardless of what the money was used for. Now you can only make interest deductions on money used to improve your home. An equity loan will be added to the total mortgage when claiming interest deductions. If you have reached the maximum deductible amount with your first mortgage, you won't be able to claim more for an equity loan.

DISCOUNT POINTS 

If you purchased discount points to reduce your interest rate, you can add this to your deduction. This can only be done if you haven't already maxed out your deductions for the interest paid. For those who are not familiar with the term "Points," it is equal to one percent of your loan amount or a thousand dollars for every hundred thousand you borrow.

For example, you borrow $300,000; one point would equal three thousand dollars. If you plan on bieng in the home for an extended period of time, it makes sense to pay points as you'll be bringing down your interest rate.

If you move around a lot and know you won't stay in the house long, paying points would not be wise. Consult with your lender so they can show you the differences in payments between both choices.

If you paid points in the past year, they are the home tax deduction you will want to remember.

PROPERTY TAXES 

Property taxes offer a limited chance to increase deductions. You can claim up to $10,000 or $5,000 for married couples filing separately. This can be claimed as a combination of local and state, property, sales, and income taxes. Property taxes used to be a far more significant deduction, but that changed over the last few years when the tax code was modified.

WORKING FROM HOME  

The self-employed, who use part of their home as an office, can use these expenses as a deduction. The IRS gives more information about what qualifies and how to calculate the deductions on their website. US News also has an excellent resource on what you need to know about home office deductions.

MEDICAL DEDUCTIONS  

If you need to install equipment in your home, which is required in order to help the accessibililty necessary due to medical problems, this can be added to deductions. If the improvement is permanent and increases the value of the property, the deductible amount is reduced by the increased amount. Medical equipment that is needed for you or your spouse or a dependent can be included in this.

EXPENSES THAT CAN'T BE CLAIMED  

While there are some costs that you can claim for, there are many more home expenses that aren't covered. Home buying tax deductions don't include stamp taxes, appraisal fees, or forfeited deposits. You can't claim the costs of utilities or rent from living in a home before closing. Depreciation on the property also shouldn't be added to your itemized deductions.

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What is a CLUE Report or History Loss Statement?

A CLUE report, generated by LexisNexis (a consumer reporting agency that maintains a large database of consumer claims submitted by insurance companies) details homeowners insurance claims made on a property within the past seven years. Insurance companies use these reports to help determine the cost of homeowners insurance based on the property’s claims history, among other criteria.

Why Should Homebuyers Care About CLUE Reports?

CLUE reports can reveal potential problems with a property, such as water damage, foundation issues, or mold. Knowing about these past issues can help you anticipate future maintenance needs and potential insurance costs. For instance, multiple claims for water damage might suggest recurring issues that could lead to mold, which might increase your homeowners insurance premiums.

What Information is Included in a CLUE Report?

A CLUE report includes the homeowner’s name, personal details, policy number, date of claims, types of loss, and the amounts paid by the insurance company for each claim. It may also contain general information about insurance providers and the nature of the claims.

How to Access a CLUE Report

Homeowners can obtain a copy of their property’s CLUE report for free once every 12 months, thanks to the Fair Credit Reporting Act. They can request this report from LexisNexis by calling 1-866-312-8076 or visiting www.consumer.risk.lexisnexis.com.

As a buyer, you cannot directly access a CLUE report for a property you’re interested in. However, you can ask the seller to provide it or make your offer contingent on receiving a satisfactory CLUE report. Additionally, when you apply for homeowners insurance, the insurance company will pull a CLUE report on the property so you will know about the claims history.

Come see me or give me a call to learn more, or for any questions about real estate in Northern Arizona!

Come see me at our office in historic downtown Flagstaff when you are ready to buy or sell in northern Arizona, or have real estate questions.

I've been a Realtor in northern Arizona for 30 years, and will apply my expertise and knowledge to help you!