What Deductions to Declare on Your W-4 When You Are a Homeowner
Purchasing a new home is a life-changing event that warrants updating your Form W-4. There are a number of deductions that homeowners can claim on the Form W-4 that put more money in their pockets. The primary areas for deduction are real estate taxes, sales taxes, home mortgage interest and mortgage insurance premiums.
Real Estate Taxes
A real estate tax is an annual tax on the value of real estate property, levied by local and state governments. These taxes are deductible under three conditions: (1) the tax is based on the value of the property, (2) the taxing authority charges a uniform rate and (3) the tax benefits the general public and does not grant you special privileges. You can deduct up to $500, or $1,000 if you are married and filing jointly. If you pay real estate taxes through escrow, you can deduct the real estate taxes that the lender actually paid to the taxing authority. This amount is on your real estate tax bill.
According to the IRS, you are generally allowed to deduct local and state sales taxes in lieu of local and state income taxes. The sales tax deductions apply to sales tax on your home or home building materials.
Home Mortgage Interest
The portion of your mortgage payment that is for interest is deductible. But this deduction is limited if you owe more than $1 million on your mortgage, or if the mortgage was taken for any reason other than to build, buy or improve your house. To qualify, the interest must be on a loan for your main or second home.
Mortgage Insurance Premiums
Mortgage Insurance Premiums are deductible only for qualified mortgage insurance. Qualified mortgage insurance is provided by the U.S. Department of Veterans Affairs, the Federal Housing Administration or the Rural Housing Administration. Private mortgage insurance, defined in section 2 of the Homeowners Protection Act of 1998, is also considered a qualified mortgage insurance.
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