koomen@rochester.UUCP (08/09/85)
From: Hans Koomen <Koomen>
Can anyone give me any info or pointers to reading material on the
fiscal implications of (first time) home purchase? Not just mortgage
interest deduction, but things like (which part of) closing costs,
property taxes held in escrow, etc.
Thanks a Meg. Please reply to me. If quantity warrants, I'll summarize.
-- Hans <Koomen@Rochester.ARPA> or <{seismo,...}!rochester!koomen.UUCP>mls@ittvax.ATC.ITT.UUCP (Michael Schneider) (08/12/85)
Although we know about deferring capital gains tax on federal taxes, some states will tax you on the sale of your house. We all know that we should think about the sale of a house when we buy it. In the case of taxes, many of the items that can't be deducted from taxes can be added to the basis of the house, thus reducing the capital gains when it is sold. This calls for careful accounting when you buy and upgrade the house while you live in it. M.L. Schneider
bobn@bmcg.UUCP (Bob Nebert) (08/12/85)
> From: Hans Koomen <Koomen> > > Can anyone give me any info or pointers to reading material on the > fiscal implications of (first time) home purchase? Not just mortgage > interest deduction, but things like (which part of) closing costs, > property taxes held in escrow, etc. > > Thanks a Meg. Please reply to me. If quantity warrants, I'll summarize. > > -- Hans <Koomen@Rochester.ARPA> or <{seismo,...}!rochester!koomen.UUCP> Me, my wife and three kids are planning on buying our first home. Naturally we don't have EXCESS money so ANY helpful hints and advice I'd be grateful to receive. Thanks in advance sdcsvax!bmcg!bobn Bob Nebert Burroughs Corp
jpexg@mit-hermes.ARPA (John Purbrick) (08/13/85)
> From: Hans Koomen <Koomen> > > Can anyone give me any info or pointers to reading material on the > fiscal implications of (first time) home purchase? Not just mortgage > interest deduction, but things like (which part of) closing costs, > property taxes held in escrow, etc. As usual, the best advice, at the best price (free), comes from the IRS. They have a publication specially for homeowners, though I don't know the exact title or publication number. Call your local IRS office. But it does include the information you asked about.
gnome@olivee.UUCP (Gary Traveis) (08/14/85)
> From: Hans Koomen <Koomen> > > Can anyone give me any info or pointers to reading material on the > fiscal implications of (first time) home purchase? Not just mortgage > interest deduction, but things like (which part of) closing costs, > property taxes held in escrow, etc. > > Thanks a Meg. Please reply to me. If quantity warrants, I'll summarize. > > -- Hans <Koomen@Rochester.ARPA> or <{seismo,...}!rochester!koomen.UUCP> One thing I can recommend is to pay any/all points with a separate check (not as part of the downpayment). That way, you can take it off your taxes as a home-buying expense.
ark@alice.UUCP (Andrew Koenig) (08/16/85)
Here is a summary of things I learned while buying my first house a little more than a year and a half ago. Of course, any or all of this may be out of date or incorrect. In general, you can deduct two kinds of house expenses: taxes and interest. The exact manner in which property taxes are handled depends on where you live, but the following is probably typical. We pay property taxes quarterly, with the bill for each quarter being due the beginning of the second month of the quarter. Thus taxes for January through March are due on February 1, and so on. Suppose you close a house on March 17. This means that the seller has paid property taxes through the end of March. You must therefore reimburse the seller for 15/90 of the taxes that the seller paid for that quarter, because you own the house for 15 of the 90 days in the first quarter (March 17 through March 31). That money is taxable income for the seller and is deducted from your income taxes for next year. (If you like, instead of thinking it as income for the seller, think of it as an amount the seller must subtract from the amount of tax payments HE deducts from his income taxes next year. Same thing.) This year, you will deduct the tax payments you make on May 1, August 1, and November 1, as well as the part you gave the seller at the closing. What about interest? There are three parts to consider: (1) "points", (2) fractional month adjustment, and (3) regular interest. Points are a part of the interest that you pre-pay. Their purpose is to account for the fact that there are quite a few costs associated with making a loan, so the bank wants to discourage people from refinancing without a very good reason. Because this charge is interest, it is generally deductible (but not always -- check with an accountant or laywer to make sure!) for a first mortgage. Banks like mortgages to be for an integral number of months, so when you close on March 17, the bank will probably give you a mortgage starting on April 1. At the closing, therefore, you will have to come up with some extra interest to cover the loan between March 17 and March 31. This will probably be 15/360 times the interest rate of the loan times the principal, and can be deducted as interest just like any other interest. Your first mortgage payment isn't due unti May 1. Payments will be due the first of each month thereafter. Thus, this year you can deduct payments you made on the first of May, June, July, August, September, October, November and December. You have to wait until next year to deduct the payment you made on January 1. The bank will probably insist on making your tax payments for you. To do this, they will add some amount onto your mortgage payment to go into an escrow fund, and then pay the taxes from the fund. It is important to realize that you cannot deduct the taxes until they are actually paid! Thus, at the end of the year, you will have paid the bank for two months worth of property taxes that are now sitting in the escrow fund. Since this money is still yours, you cannot deduct it from your income taxes.
wjh@bonnie.UUCP (Bill Hery) (08/16/85)
> > Your first mortgage payment isn't due unti May 1. Payments will be > due the first of each month thereafter. Thus, this year you can deduct > payments you made on the first of May, June, July, August, September, > October, November and December. You have to wait until next year > to deduct the payment you made on January 1. > If you want to deduct the Jan 1 payment this year, pay it on Dec. 30. Make sure you get a separate rct. from the bank dated Dec. 30, since they will probably credit your account on the next business day (which is next year). As far as IRS is concerned, it's the date you actually PAID the interest that counts.
john@hp-pcd.UUCP (john) (08/19/85)
<<<
<
< Your first mortgage payment isn't due unti May 1. Payments will be
< due the first of each month thereafter. Thus, this year you can deduct
< payments you made on the first of May, June, July, August, September,
< October, November and December. You have to wait until next year
< to deduct the payment you made on January 1.
<
Actually you can only deduct the "Interest" portion of your payment, the
$20 or $30 that goes towards the principle is not deductable.
Most banks will also maintain a reserve account for your fire/disaster
insurance to protect themselves from your forgetting to mail in the
payments.
Question: If you mail the 1 Jan payment in a week early and it clears the
bank by 31 Dec then what year do you deduct the interest?
John Eaton
!hplabs!hp-pcd!johnbobn@bmcg.UUCP (Bob Nebert) (08/21/85)
> > > > Your first mortgage payment isn't due unti May 1. Payments will be > > due the first of each month thereafter. Thus, this year you can deduct > > payments you made on the first of May, June, July, August, September, > > October, November and December. You have to wait until next year > > to deduct the payment you made on January 1. > > > If you want to deduct the Jan 1 payment this year, pay it on Dec. 30. > Make sure you get a separate rct. from the bank dated Dec. 30, since they > will probably credit your account on the next business day (which is next > year). As far as IRS is concerned, it's the date you actually PAID the > interest that counts. If you prepay on December 30 and deduct it for that year, you will only have 11 months for the next year. If you do the same that year, the cycle repeats. I don't see the advantage.
grl@charm.UUCP (George Lake) (08/21/85)
Someone has recently stated that you should pay any and all points with a seperate check to deduct it as a home buying expense. WRONG--these type expenses only diminish capital gains or count under limited conditions as a moving expense. Points are pre-paid interest. They count as an interest deduction however you pay them!!!!!!
spp@ucbvax.ARPA (Stephen P Pope) (08/22/85)
I found a book by Robert Bruss called something like "The Smart Investor's Guide to Real Estate" useful. Besides details of real estate tax (both principal residence and investment property) law, he has advice in other areas as well. Beware though, being a realty agent, he's full of the "best time to buy is always now" philosophy. steve pope (ucbvax!spp)
setha@teklds.UUCP (Seth D. Alford) (08/22/85)
Typically the mortgage holder will send out a statement at the end of the year (or sometime in Jan-Mar of the next year) indicating how much principle and interest was paid for the year. I just take the amount off of the statement and put it in the box on my Schedule A. If you're considering taking out a mortgage, ask about this. -- --Seth Alford Tektronix Walker Road PO Box 4600 MS 92-823 Beaverton OR 97075 tektronix!teklds!setha (503)-629-1145
rws@gypsy.UUCP (08/23/85)
Your points can be in corporated in your mortgage as an "origination fee" or "discount <something-or-other>". The former is deductible in the year you take the mortgage; the other (I believe) translates into a higher effective annual interest rate, so that the deduction is spread out over the life of the loan. Your bank chooses how to divide the points between the categories. Interest deduction would be due in the year it was owed, not the year it was paid. Bob Schwanke Siemens Research Princeton, NJ 08540-6668 seismo!princeton!siemens!rws
gnome@olivee.UUCP (Gary Traveis) (08/26/85)
> > Points are pre-paid interest. They count as an interest > deduction however you pay them!!!!!! Actually, in this area, many banks will incorporate the points into the downpayment as a service charge. This was as of 2.5 years ago so it might have changed.
wjh@bonnie.UUCP (Bill Hery) (08/26/85)
> > If you prepay on December 30 and deduct it for that year, you will only > have 11 months for the next year. If you do the same that year, the > cycle repeats. I don't see the advantage. > You are right that you have to keep this up over the life of the mortgage, but there is an advantage. You get several hundred dollars back this year, which is then given back to IRS a little at a time over the life of the mortgage. It only is useful because of the time value of money *** REPLACE THIS LINE WITH YOUR MESSAGE ***
dave@lsuc.UUCP (David Sherman) (08/29/85)
In article <1811@bmcg.UUCP> bobn@bmcg.UUCP (Bob Nebert) writes: >If you prepay on December 30 and deduct it for that year, you will only >have 11 months for the next year. If you do the same that year, the >cycle repeats. I don't see the advantage. You're forgetting one of the great axioms of tax planning: "Tax deferred is tax saved." (Or from the government's point of view (my wife's an auditor for Revenue Canada), "tax deferred is tax lost".) I can't comment on the specifics of the issue, since I don't know much about U.S. tax law. I'm intimately familiar with the Canadian tax system, however, and planning for deferral of tax plays a fundamental part in both personal and corporate tax planning. Dave Sherman The Law Society of Upper Canada Toronto -- { ihnp4!utzoo pesnta utcs hcr decvax!utcsri } !lsuc!dave