Final closing statement
Shortly after you close, the title company will mail you a copy of your Closing Disclosure stamped, “Final”. Save this for tax time. Some of what you paid at closing is likely to be tax-deductible. As an added bonus, there’s a good chance your final CD will come with a small refund check from the title company.
Look out for 1098’s
Next January, be on the lookout for your 1098 Forms. These come from each bank that serviced your loan and report the interest, points and property taxes you paid. If you paid any deductible mortgage insurance, your 1098 will include this as well. Check out IRS Publication 936 for all the details of the Home Mortgage Interest Deduction. Note that points, taxes and interest paid on your Closing Disclosure and 1098 forms may overlap, so be careful not to claim them twice. The IRS, as you might imagine, frowns on this.
Profits may be taxable
If the property you purchased is a vacation home or rental, you will be taxed on any profits (capital gains) when you sell. Although under current IRS rules most people are excluded from paying tax on gains on the sale of a primary residence, there are still cases where taxes could be due (notably: claiming rental income or home office use or selling with a whopping big profit). So it’s still a great idea to keep tabs on anything you spend on improvements to your home. The IRS has a helpful article here, but I’d suggest asking your CPA for direction on keeping the relevant records.
If the home you purchased was your first, there’s a good chance this year will be the first time you will claim itemized deductions on your tax return. Although itemizing complicates your taxes a little (Goodbye, EZ form… hello, Schedule A), you’ll love the result…less tax owed. Review the IRS page on itemized deductions and keep receipts and records for any that apply to you. If you were lucky enough to score a Mortgage Credit Certificate with your mortgage, you’ll have one more form to file (IRS Form 8396). Don’t forget it. It should save you a bunch!
Never thought complicating your taxes would leave you smiling, did you?