Can I deduct the downpayment, closing costs, and...on a home I purchase in 2008 if I work out of that home?
Can I deduct the downpayment, closing costs, and monthly payments such as principal and insurance on a home I purchase in 2008 if I work out of that home?
- ninasgrammaLv 71 decade agoFavorite Answer
Certain closing costs may be deductible. In particular, property taxes paid at closing, and mortgage interest paid at closing are deductible.
Your downpayment and mortgage principal payments are not deductible. These payments are part of your investment in your home and an asset to you.
If you work out of your home, you may qualify for the Office in Home Deduction. If your income associated with working at home qualifies, you may be able to take a fraction of the operating expenses of your home, mortgage interest, insurance, and real estate taxes.
You may be able to depreciate a fraction of your home over 39 years, meaning you will be able to deduct a fraction of your home's value of that period of time. You will pay taxes on this deduction if you sell your home at a gain.
The Office in Home Deduction is explained in detail in IRS Publication 587 Business Use of Your Home.
- JudyLv 71 decade ago
No. For closing costs, you can deduct any part that was for interest or real estate taxes, as an itemized deduction on schedule A if you itemize. You can also take an itemized deduction for the part of the monthly payment that is for interest and real estate taxes.
Down payment, insurance, and the part of the payment that is principal are not deductible, nor are other closing costs.
If you work out of your home as an employee, or run your own business out of your home, you MIGHT be eligible to take a home office deduction - rules are different for employees than business owners. But in either case, to take a home office deduction, you must use part of your home REGULARLY and EXCLUSIVELY for business - if you have a computer set up in the corner of a room that you use for other purposes, that isn't eligible. If you do qualify for a home office deduction, you can deduct a portion of your expenses like utilities, and also depreciation on the house - the portion is based on how much of the house is used as your office, either by number of rooms or by square footage. Be very careful with taking a home office deduction - it's a red flag for audits, and would be disallowed if you don't qualify.
- efflandtLv 71 decade ago
Note that the seller can deduct property tax credit given to the seller for estimated property tax through closing. But the buyer can only deduct property tax actually paid (not when it goes into escrow) after any credit from previous owner is used up.
In some cases property taxes are not collected until following year. For example when I bought my home in 2002 I received credit for all of 2001 tax due 2002 and part of 2002 tax due in 2003. So I only got partial property tax deduction in 2003, and not full year deduction until 2004. But many other states collect tax the same year it is for.
There is no way to deduct or depreciate the entire cost of a home you live in, only a portion of expenses and depreciation for the part used exclusively for business.
- AndreaLv 71 decade ago
Honestly, you should have an accountant assisting you with taxes. There's so much involved with your taxes if you don't have an at-home office to consider. I know they've gotten very strict with deductions relating to working at home. I'm quite sure your down payment is not deductible - that's not something you paid out - that's what you paid towards your home and is your equity in your home.
You may want to make an appt with an accountant now to plan for your taxes.
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- DJLv 51 decade ago
You need to go to www.irs. gov and look for these publications - especially #587
The instructions for Schedule C on the 1040 form
Publication 463 Travel, Entertainment, Gift, and Car Expenses.
Publication 505 Tax Withholding and Estimate Tax
Publication 583 Starting a Business and Keeping Records
Publication 587 Business Use of your Home
- Anonymous1 decade ago
Get expert tax advice and expect to be audited if you claim home office deductions.