Know what’s deductible after buying your first home

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Making the dream of owning a home a reality is a big step for many people. Whether it’s a home to renovate or a dream home, home ownership is an important step that can come with a learning curve. New homeowners should familiarize themselves with allowable deductions, programs that can help with home ownership, and the use of housing allowances that can be beneficial.

With respect to homeownership, the IRS considers a house to be a house, condominium, co-op apartment, mobile home, houseboat, or trailer that contains sleeping space, restrooms, and kitchen facilities.

Most homebuyers take out a mortgage to purchase their home and then make monthly payments to the mortgage holder. This payment can include several costs of owning a home. The only expenses the owner can deduct are:

Taxpayers must file Form 1040, US Individual Income Tax Return or Form 1040-SR, US Income Tax Return for Seniors, and detail their deductions to deduct home ownership expenses. However, taxpayers cannot take the standard deduction if they detail.

Non-deductible payments and expenses
Owners cannot deduct any of the following.

  • Insurance, other than mortgage insurance, including fire and comprehensive insurance, and title insurance
  • The amount applied to reduce the principal of the mortgage
  • Salary you pay for domestic help
  • Depreciation
  • The cost of utilities, such as gas, electricity or water
  • More settlement or closing costs
  • Deposits, installments or earnest money forfeited
  • Internet or Wi-Fi system or service
  • Homeowners association fees, condo association fees, or common charges
  • Home repairs

Mortgage interest credit
Mortgage interest credit is intended to help low-income people become homeowners. Eligible individuals can claim the credit each year for a portion of the mortgage interest paid.

A homeowner may qualify for the credit if they have received a qualified mortgage certificate from their state or local government. An MCC is only issued for a new mortgage for the purchase of a principal residence. MCC will indicate the certificate credit rate that the owner will use to calculate your credit. It will also show the amount of certified debt and only interest on this amount is eligible for credit.

Homeowners Assistance Fund
The Homeowners Assistance Fund The program provides financial assistance to eligible homeowners for the payment of certain expenses related to their principal residence in order to avoid mortgage defaults, payment defaults, foreclosures, loss of utilities or home energy services, as well as as the movements of owners in financial difficulty after January 21, 2020.

Ministerial or military housing allowance
Ministers and uniformed service members who receive a tax-free housing allowance can still deduct their property taxes and mortgage interest. They don’t have to reduce their deductions based on the allowance.

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