After buying a house, it is important to understand the tax implications of homeownership. According to the Internal Revenue Service (IRS), homeowners can deduct the following expenses from their taxes: state and local real estate taxes, home mortgage interest, and mortgage insurance premiums 1. However, taxpayers must file Form 1040 or Form 1040-SR and itemize their deductions to deduct home ownership expenses. Non-deductible payments and expenses include insurance (other than mortgage insurance), wages paid for domestic help, depreciation, utilities, settlement or closing costs, and more 1.
It is also important to note that when a piece of real property changes hands, states, counties, and municipalities can choose to levy taxes, often known as documentary or “stamp” taxes 2. These taxes are often based on a percentage of the purchase price of the property 2.
When it comes to buying a house, there are several tax credits and deductions that homeowners may qualify for. For example, the mortgage interest credit is meant to help individuals with lower income afford home ownership. Those who qualify can claim the credit each year for part of the home mortgage interest paid 1. Homeowners may also be eligible for the Homeowners Assistance Fund program, which provides financial assistance to eligible homeowners for paying certain expenses related to their principal residence to prevent mortgage delinquencies, defaults, foreclosures, loss of utilities or home energy services, and also displacements of homeowners experiencing financial hardship after January 21, 2020 1.
In conclusion, homeownership comes with a learning curve, but understanding the tax implications can help you make informed decisions.
Source: https://www.irs.gov/
Supplemental Taxes
Supplemental taxes are additional property taxes that are levied when a property changes hands or undergoes new construction 1. The amount of the supplemental tax is calculated based on the difference between the old and new assessed values of the property 1. Supplemental tax bills are identified as either secured or unsecured. Those identified as secured are liens on the property, those identified as unsecured are billed to the name assessed and, if unpaid, will result in recordation of a personal tax lien 2.
Secured Property Taxes
Secured property taxes are taxes that are assessed on real property and are secured by a lien on the property 3. These taxes are typically paid twice a year and are based on the assessed value of the property 3. The amount of the tax is calculated by multiplying the assessed value of the property by the tax rate 3. The tax rate is typically expressed as a percentage of the assessed value of the property 3.
Tax Buyer need to pay
When buying a home, the buyer is responsible for paying the real estate taxes due after closing 3. This way, the buyer and seller pay only the real estate taxes that accrued during the time they actually owned the property 3. Proration is the divvying up of property expenses (like taxes) between the buyer and seller. Prorated costs, like property taxes and HOA fees, are usually due at closing 4.
Tax Seller need to pay
When selling a home, there are three types of taxes to consider: capital gains tax, property tax, and real estate transfer tax 5. Capital gains tax is owed if the profits from the sale exceed $250,000 for single filers or $500,000 for joint/married filers 5. Property tax is typically paid by the seller for the period of time they owned the property 3. Real estate transfer tax is a tax that is levied when a piece of real property changes hands 6. In many places, the seller is the one obligated to pay the transfer taxes, but the rules vary 6.