If you are looking to buy a house you may want to know what tax deductions you receive as a first time homeowner. There are several standard deductions you receive as a homeowner. To deduct expenses of owning a home, you must file Form 1040 and itemize your deductions on Schedule A (Form 1040). If you itemize, you cannot take the standard deduction.
Now your first question may be what does the IRS define as a home? Your first home may be a house, condominium, cooperative apartment, mobile home, houseboat, or house trailer.
If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. Your house payment may include several costs of owning a home. Generally, your real estate taxes and home mortgage interest are included in your house payment. The only costs you can deduct are real estate taxes actually paid to the taxing authority and interest that qualifies as home mortgage interest.
Real estate taxes are the annual tax on the value of real property. You can deduct the tax if it is based on the assessed value of the real property and the taxing authority charges a unique form rate on all property in its jurisdiction.
Home mortgage interest is the interest you pay on a loan secured by your main home or a second home. The loan can be a first or second mortgage, a home improvement loan, or a home equity loan.
Generally, you can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Deductible sales taxes may include sales taxes paid on your home (including mobile and prefabricated), or home building materials if the tax rate was the same as the general sales tax rate. Note that if you elect to deduct the sales taxes paid on your home, or home building materials, you cannot include them as part of your cost basis in your home.
Here are some expenses, which may be included in your house payment that cannot be deducted: •Fire or homeowner’s insurance premiums. •FHA or other mortgage insurance premiums. •The amount applied to reduce the principal of the mortgage.
You cannot deduct any of the following items: •Insurance, including fire and comprehensive coverage, and title and mortgage insurance. •Wages you pay for domestic help. •Depreciation. •The cost of utilities, such as gas, electricity, or water. •More settlement costs. •Forfeited deposits, down payments, or earnest money.
Note that you can deduct some of these items if you operate a home business. For example, you are allowed to use depreciation on your personal residence if you have a home office.
To learn more about tax deductions for first time homeowners visit http://www.real-estate-owner.com/general-tax-breaks.html.
Is your business missing out on valuable tax deductions you can take for the use of your personal vehicle for business purposes'If you haven't done so already, you should definitely beat a path to the door of your local office supply store and pick up a notebook for logging the mileage you drive to conduct business�"and be sure to log the miles you drove to buy it! Not taking the trouble to do this is like letting your pricey gasoline flow onto the pavement instead of into your tank! Even if you work at home most of the time, miles you've driven to purchase office supplies, buy stamps or mail packages, and other errands for your business can translate into big tax deductions. With fuel costs soaring, you are literally throwing money down the drain if you are not keeping track of this mileage and taking the deductions for it to which you're entitled as a business owner. And the first entry you need to make is the beginning mileage on the odometer as of January. You'll also want to make sure that you keep track of all your automobile expenses associated with that personal vehicle that you're using for business.(See why in my article "Valuable Tax Deductions for your Vehicle You Can't Afford to Miss").
The dramatic surge in fuel costs has not been lost on the IRS. Of course, gasoline prices began to edge up shortly after the beginning of the war in Iraq; but the devastation wrought by Hurricane Katrina prompted the IRS to offer a valuable money-saving solution for business owners. (If you live outside the U.S.A. you should check your tax authority's website for similar provisions.)
Last year,for 2005, the IRS increased the standard mileage rate for the use of a vehicle (car, van, or truck) by 3 cents a mile, to 40.5 cents a mile for all business miles driven. However, in the wake of Katrina, that rate was increased further to 48.5 cents a mile for the business miles driven in the months of September, October, November, and December, 2005.
This increased mileage rate ended with the end of 2005. The new mileage rate for 2006, effective January 1, is now 44.5 cents per business mile driven. You can maximize this deduction if you're careful to consolidate business and personal errands. For example, I wait until I need to go to the post office to ship a package for my business to stop to at the drug store and supermarket right next door to pick up groceries. What would have been "dead" mileage becomes a deductible business trip, as long as you've logged your business purpose in your mileage logbook.
In addition, for both 2005 and 2006, the IRS also encouraged Katrina-related charitable relief activities by granting higher rates for miles deductible and miles reimbursable driven for such activities.
Of course, the use of these mileage allowances can be rather complicated. For example, you cannot take additional deductions for business use of an automobile to which you have already applied the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle that your business purchased directly.
And if you're using a personal vehicle for your business, don't forget to calculate the percentage of total miles for the year that you travel for business purposes. At the end of 2006, you'll note the year-end odometer reading in your mileage logbook and subtract from it the odometer reading that you recorded this month. Then you'll add up all miles driven for your business that you have recorded and divide it by that total mileage to calculate the percentage of total miles you used for your business. If it turns out that 30% of your total mileage on that personal vehicle was for business purposes, you can deduct 30% of *all* your expenses for maintaining that vehicle: not only fuel, but all trips to the garage for routine maintenance or special repairs as part of your business expenses for the year.
The devil is in the details, as always, of course. You will want to consult your tax accountant on how best to apply the rules to your situation. If you prepare your tax returns yourself, you can get the details directly from the IRS website: http://www.irs.gov/pub/irs-drop/rp-04-64.pdf. Examine the fine print closely: You'll find that there are limits on what percentage of business use can be claimed for a personal vehicle, no matter what your actual numbers might be; so if your actual business mileage is greater than 75 per cent of your total mileage, you might be better off purchasing a separate vehicle dedicated to business use. If you've taken the care to structure your business correctly--using a corporation, limited liability company, or other stand alone entity--you and your business will benefit from even greater deductions.
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Both Chris Castillo & Germaine A. Hoston, Ph.d. Hoston are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Chris Castillo has sinced written about articles on various topics from Tax, Tax Deductions and Tax. Chris is a software engineer who maintains which provides free real estate tax related information.. Chris Castillo's top article generates over 2900 views. to your Favourites.
Germaine A. Hoston, Ph.d. Hoston has sinced written about articles on various topics from Tax Deductions. Germaine A. Hoston, Ph.D., President of Azur Pacific Associates, a consulting and translation firm, has operated successful consulting businesses in the US and France. Get a free special report when you subscribe at. Germaine A. Hoston, Ph.d. Hoston's top article generates over 2900 views. to your Favourites.