The IRS Deductions Blog

Posts Tagged ‘what does standard deduction mean’

Question: Buying a house and just got married… what does this mean for us next April?

(we normally do our taxes as soon as we get the forms, so this is actually before April…)

So we close on our first house Aug 15 and we got married May 3. What does this mean for us when it comes time to do our taxes? I am not sure of the benefits of filing joint vs separate, and I am not sure what it means for us with the house. I always hear about tax breaks for buying a home… but does that still count when we own it less than half the year? And, we have always taken the standard deduction… should we do itemized now? I am just pretty ignorant of tax stuff in general. I normally just use the do it yourself tax software…

Answer: First of all, you can deduct the mortgage interest charged by your mortgage lender. You will received by January 31st 2009 form 1098 showing how much interest you paid in 2008. It does not matter if it was just one month of interest, it is still deductible.

You can also deduct the Real Estate taxes you paid. THey should also be on form 1098 or you should received a statement from the county you live in showing how much tax you paid. You should also deduct any prorated taxes collected from you at closing. They may not be on form 1098, but you should have a copy of what you paid on the closing statement. Local taxes, if any, are also deductible.

You can deduct any points you paid or the seller paid. These should also be shown on the closing settlement statement. You can not deduct attorney fees, broker commissions, etc, but they can be added to the basis of the home when it comes time to sell.

One of the best ways to see how mortgage interest changes your tax liability, is to take your tax software and open your tax return from 2007. Change from standard deduction to Itemized Deductions. You did not say which tax preparation software you are using, but I am assuming it was Turbo Tax. Open last years return and go to deductions an credits and go to the place in the software where you enter mortgage interest. In Turbo Tax it is under deductions and credits and it is the first in the list, “your home.” Make a note of what your owed or received as a refund in 2007. Then go to the mortgage interest section and add what you feel your mortgage interest will be for 2008. Recalculate the return and see what the difference is in your refund or your liability. This will give you an idea of what your taxes would have looked like in 2007 had you bought the house one year earlier. By doing this you will also get an idea whether the interest deduction will be big enough in 2008 for you to switch from the standard deduction to itemized deductions. Don’t worry about ruining last years return, because when you exit the software, it will ask if you want to save the return. Click on NO.

Using tax software is an excellent way to learn how the tax return works and how different deductions effect how much tax you owe. If all of this is just too confusing for you, I suggest you use a tax preparation service for 2008 just to make sure you are getting it correct.

Here is a good internet link to help you go through what is and is not deductible regarding the purchase of a new home. Jackson Hewitt tax service. http://www.jacksonhewitt.com/?ResourcesLibraryTopicsHomeownership You can go to H&R Block or any tax site to get the information.

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