How many deductions should you claim on your tax returns if you are interested in buying a home this year?
Many thinking of buying a home are seriously conflicted about how many deductions they should show on their tax returns and how many deductions to take in order to best position themselves to qualify for a mortgage loan.
It’s a great time for buying a home. Between low home prices, exceptional interest rates and tax time, there is a great opportunity to scoop up a great deal using your tax refund as a down payment.
It’s a catch 22 situation. Take too many deductions to reduce tax liability and reduce your buying power or ability to qualify for a home loan versus not taking the deductions to qualify for the mortgage and end up paying more income taxes.
Since the death of the stated income loan this has become an even bigger dilemma, and is equally challenging for the low wage earner as well as the multi-million dollar revenue small business owner.
Clearly you are required to show all of your income and take all of the appropriate deductions in your tax returns, however there are those those that have more flexibility in how they structure their finances and deductions, especially the self-employed.
If you have a couple options for your tax deductions, do the math carefully. No one likes paying taxes but what if filing your taxes in a way that results in you winding up paying a few thousand extra helps you get a mortgage loan and lock in a sweet price on buying a new home with 30 year fixed interest rate. This could mean the difference in saving hundreds of thousands in home price and interest and adding all of that extra equity to your wealth versus waiting. Isn’t that worth paying a little extra to Uncle Sam just this year?
Then of course you can use the extra deductions from buying a home and deductions for mortgage interest next year…