четверг, 25 августа 2016 г.

Tax Write-Offs When Building a New Home

Tax Write-Offs When Building a New Home
Tax Write-Offs When Building a New Home

Building a home allows you to customize the floor plan according to your needs and desires.
Building a home allows you to customize the floor plan according to your needs and desires.

Whether you build it or buy it, your new home is likely to be the most expensive purchase you will ever make, according to CNN Money. The Internal Revenue Service provides some financial assistance by allowing you to write off some of the expenses associated with building a home, but you'll have to itemize your deductions if you want to take advantage of these write-offs.


Real Estate Taxes


Local governments typically derive the bulk of their operating income from a combination of real estate taxes and sales taxes. The IRS allows you to deduct the amount you paid for real estate taxes when building your new home. The taxes must be based on your property's assessed value, and all of the property in the taxing authority's jurisdiction must be charged a uniform rate. The tax can't be for a special privilege or service. It must be for the benefit of the general public. The tax has to be imposed on you, which means you don't get to take a write-off if you pay the real estate taxes on behalf of the person who sold you the land, and you have to actually pay the taxes during the tax year. Write off your real estate taxes on Form 1040, Schedule A, Line 6.


Sales Taxes


You can write off the amount you paid for either your state and local income taxes or state and local general sales taxes. In most years, choosing your state income tax will probably provide a larger deduction, but if you are building a new home you have the option of adding the sales taxes you paid for building materials to the amount listed on the IRS's sales tax table. Compare your combined sales tax expenses with your state and local income taxes to determine which provides you with the largest deduction. Write off your state and local sales taxes on Form 1040, Schedule A, Line 5.


Mortgage Interest


Building your home might be more cost-effective than purchasing an existing home, but you're probably still going to have to take out a mortgage loan to pay for it. You can deduct the amount of mortgage interest you paid on that loan during the tax year, provided the loan is secured by your primary residence or a second home. In certain cases you can also write off any points you had to pay to secure your mortgage loan. Write off your mortgage interest and points on Lines 10, 11 or 12 of Schedule A, Form 1040.


Mortgage Insurance


Your mortgage lender might require you to carry mortgage insurance if you made a down payment of less than 20 percent of the value of the home you are building. The IRS allows you to write off your mortgage insurance premiums on Line 13 of Schedule A, Form 1040. Don't confuse mortgage insurance with your homeowner's insurance policy. They are not the same thing, and you can't write off amounts you paid for your homeowner's insurance.


Non-Deductible Expenses


Most expenses associated with building a new home are not tax-deductible. You may deduct no part of your down payment and n part of the principal of your mortgage loan. The costs of installing, connecting or paying for utilities also are not deductible. Settlement expenses, forfeited deposits, insurance other than mortgage insurance, and depreciation are not tax deductible.



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