Buying a new home is likely to be one of the most expensive purchases you ever make. Looking at the deficit figure we’ve gotten ourselves into can give us night terrors.
The good news is, you may be eligible for some tax breaks to make that mortgage figure a bit more palatable. Here’s the low down on some of the claims you can take advantage come tax time. Remember that you’ll probably need to itemise your taxes before you can take advantage of these tax breaks so make sure you get all your paperwork into order before you sit down with your accountant. It’s also a great idea to speak with a qualified tax advisor to make sure you’re maximising your claims.
Providing they are based on an assessed value of the property, you can take advantage of deducting any amount you paid toward state and local property taxes. Check your Form 1098 to help identify the amount you can deduct and be aware that the deduction you can claim will be reduced if you receive a partial refund of your property tax.
Also be aware that you are unable to claim a deduction until the money is removed and paid if your money is being held in escrow.
Costs From Selling
Any costs associated with selling a home within a financial year can be claimed back through your tax return. This includes any advertising expenses, broker’s fees, title insurance and repairs, though be aware that only repairs within 90 days of sale and with the intent of increasing your home’s marketability can be claimed. Any costs incurred from selling will be deducted from anything you gained from the sale.
Mortgage Interest Paid at Settlement
Providing you itemise your deductions and your mortgage is under $1 million, you can deduct any interest you pay at settlement. Check out your closing mortgage interest statement provided by your lender as this information should be on there.
Mortgage points are included on the income tax deductions list and can therefore be claimed at the end of the financial year. You need to be able to prove that they are associated with the purchase of a home. Points are deductable even if you’ve refinanced your home but must span the life of the mortgage.
Premiums for Mortgage Insurance
It’s best to speak to a qualified tax advisor about this one as they will be on top of the current rules outlined by the Rural Housing Service, Department of Veterans Affairs and Federal Housing Administration.
Home Office for Small Business
Is a portion of your home used exclusively for the purpose of running and managing your small business? Exclusively means utilised regularly as the principle place you operate your business or where you meet with clients, customers or patients. If a portion of your home is used for storing inventory used in your business, you may also be able to take advantage of this deduction. The deduction can be claimed for costs associated with depreciation, repairs and insurance.
If your home is an investment property you can claim the cost of advertising for tenants along with any letting fees that you pay to real estate agents who manage the property on your behalf. Any legal costs associated with the eviction of a tenant along with landlord insurance premiums are generally tax-deductible as are the costs associated with repairs and maintenance due to tenant wear and tear. This is providing you are not repairing damage that existed when you purchased the property.
It is important to note the difference between a repair and an improvement – an improvement being capital in nature cannot be claimed (as an aside it may qualify for depreciation or capital works deduction) and repair being revenue in nature and therefore deductable. Since it is difficult to identify if the work on a property was an improvement or repair and the Australian Taxation Office conduct routine reviews on claims made on rental properties, it is worth getting detailed invoices from any tradespeople clearly identifying the nature of the work completed.