Four simple tax considerations for new homeowners


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Reader Question: Having bought our first home last year we are getting all our home documents in order. What are the home ownership tax considerations we should know? Jared and Annie C.

Monty’s Answer: One of the most appealing advantages of being a homeowner is the tax incentive offered by the tax code. Here are some simple steps you can take to minimize the time to prepare for this year’s April 18, 2016, filing deadline. Yes, it is April 18 this year.

  1. Create a simple paper filing system. While many people utilize a software program or depend on an online bank product, a hard copy paper back-up is a good idea. For example, over an extended period of time, your software may discontinue support, you may switch banks, or other events can trigger time-consuming searches for aged computer records. Here is a quote from the IRS, “Generally, keep records relating to property until the period of limitations expires for the year in which you dispose of the property. You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property.”
  1. Seek competent advice. When it’s your first rodeo, it is a good idea to have an expert who is familiar with your total financial circumstances, to make sure you have all your bases covered. An example is a question; should we be filing a joint return? While most married taxpayers file jointly, there are personal circumstances in which you may reduce your tax payment by filing separate returns. According to a recent IRS statistic report, about five percent of married taxpayers filed separate returns. Consider seeking a good certified public accountant.
  1. Relevant documents to preserve. The HUD settlement statement (OMB Approval No. 2502-0265) that you received at the closing of the transaction is the second most important document, after the deed. This paper reveals the purchase price and describes the loan fees (some of which are deductible against income) you paid to acquire the property. The HUD statement also describes the real estate tax proration you paid, which is also deductible. The HUD statement establishes your cost basis.Mortgage interest is a deductible expense and can be documented in the monthly report from your lender, or by the form 1099 the lender is required to send you after year-end. They also send the 1099 form to the IRS. It is a good practice to crosscheck the interest portion of the monthly statement against the annual form 1099 total to verify the interest payment matches.Include the property tax statements/receipts from the real estate taxing authority. There are several choices as to when to pay property taxes on which your tax accountant can advise. The decision on when to pay property tax is another example of details influenced by your circumstances.Keep the receipts or check copies of the expenses you incur for improvements to the property. Remember that costs or improvements can be added to your basis while the expenditures for repairs cannot. Improvements increase your investment in the property for tax purposes by adding to the value of your home, prolonging its useful life or adapting it to new uses. Improvement should not be confused with repairs. Repairs do not add value; they maintain your home in good condition. Improvement examples are; adding a bathroom or bedroom, putting up a fence and paving the driveway. Repair examples are fixing gutters or floors and plastering cracks. Check out IRS Brochure 523 “Selling Your Home” online at for more information on improvements that will qualify toward the basis in your home.
  1. Other IRS regulations to watch. As time marches on, your circumstances will undoubtedly change. Some additional IRS rules could affect on how you are treated based on your circumstances. Occurrences such as renting the property, a job loss or transfer, and marital status can create exceptions or penalties. For example, in the event you accept a new position a year from now in a new location; What should you do with the house? In addition to reviewing IRS Brochure 523, consider reviewing The IRS updated moving expenses in 2018. To understand the implications. Find it online at

We encourage you to consult with your accountant, a tax counselor or the local IRS office regarding specific tax guidelines and rules.