My first home purchase.
I am in contract for a home in California and have the option to close this year or next.
I would like to know if there are any advantages or disadvantages to closing this year.
My tax position is pretty simple. I have 401K from work that I max out, I'm single, and I always try an itemize but it ends up that taking the basic deductions is more advantageous.
If anyone has any thoughts or articles on the web that may be helpful - please pass them along.
Many Thanks.
Single, your standard deduction is $5450 this year, $5700 next. If You are borderline, I'd close on Jan 2 which should help you not lose any deductions this year. I'd also hold off until January to make all of your generous charitable donations. Joe
If you plan to claim the first-time homebuyer tax credit (interest-free loan up to $7,500), be sure to close before July 1, 2009. You can claim the credit on either 2008 or 2009 tax return.
As usual, don't let the tax tail wag the financial planning dog. If your mortgage rate (assuming you are borrowing) is not locked in, it might get lower if you wait, from all indications. Your current housing and personal property storage costs, if any, are also an important factor.
Most of the closing costs on your primary residence are not deductible, but get added to your basis. If you closed today, there would be pro-rated property tax and mortgage interest for the few remaining days in the month. This year you can add up to $500 of real property tax (filing single) to your standard deduction, so you could possibly pay some of your 2nd-installment (or supplemental) property tax by year end and still get a benefit. If you are paying points on your mortgage, they will only be deductible if you itemize, ditto for PMI payments.
-Mark Bole
It's not just an income tax issue. Some states require that the buyer be living in the home by 31 December to qualify for homestead/homeowners exemption and other property tax savings. Talk to your attorney or closing agent, your buyer's agent, your lender, your tax assessor, etc., to explore all of the tax benefits and consequences.
Thanks for the information.
My options are to close on Dec 31 or Jan 2.
I am still investigating the requirements. I think I my income is over the alloted amount, but I would like to use that cash for home improvements.
I am a renter. No personal property storage.
If I did decide to close this year, on Dec 31, I don't think I can be assessed any property Tax. Well, not a significant amount anyway. Thanks for clarifying pro-rated property-tax. That is good to know.
I am paying points and I am paying PMI. I took a credit back for closing costs that was 3 percent of the purchase price. Enough to cover all my closing costs and to buy down the rate with points. I rolled my PMI payment back into my rate. Bumping my rate by .5 percent.
If I close this year and itemize there is no PMI payment to consider since it is rolled into my loan. The points purchased with the credit back is also negligible since it was not my money. Do I have that right? How would I make sure that I report it correctly? Am I missing anything?
Appears that waiting till Jan 2 would be fine.
Your income can meet the qualification limit in either year, if you close in 2009. Using the cash for home improvements adds to your basis.
Hire a professional who offers a guarantee. ;-)
Agreed.
-Mark Bole
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