A: First things first: Congratulations! You’ve become a homeowner, and seem to have done so using an enviable financial arrangement. But now that you own a home, you might need to shift the way you think and look at some things, including your taxes and other financial matters.

Owning a home is one of those landmarks that signify financial adulthood. And one of the things that responsible financial adults do is get professional help when the situation requires it. Taxes are one of those areas that often do warrant calling the pros in.

I’m not just shilling for the tax prep industry here, either: The ultimate aim of using a tax professional is to make sure you get every deduction, credit and other tax advantage for which you qualify, without jacking up your chances at triggering the universally dreaded Internal Revenue Service audit by claiming dubious deductions.

Your mortgage debt is fairly small, as was your home’s purchase price, though I don’t know whether they are large or small in the context of your overall financial picture (i.e., income, assets, investments, etc.).

The fact that you saved or somehow came up with such a sizable chunk of change to put down makes me hesitate to assume that your finances are as simple as your mortgage balance might otherwise lead me to believe.

So, it might be the case that you can easily handle your own taxes — in fact, it’s even possible that your real estate-related deductions won’t even outweigh the standard deductions, so that filing a simple form without even itemizing your deductions is actually the financially advantageous move.

Whether that’s the case cannot be determined in a vacuum — you may have other financial and tax issues going on. But with software and tax preparation services as inexpensive as they are, starting at under $20 for simple returns, I think it behooves you to get some professional advice and ensure you get the deductions you need.

Hiring a tax preparer might be a worthwhile investment to make, even if just this year, so he or she can brief you on what records you should keep and strategies you should do moving forward, like home repair and improvement receipts, or documentation of your use of an area of the home as a home office.

Now, let’s talk more substantively about the deductions that are available to you, in the event you do decide to itemize your taxes (IRS Publication 530 offers a more nuanced view into Tax Information for Homeowners):

1. Mortgage interest deduction. Assuming this home is your personal residence, 100 percent of the mortgage interest you owe and pay before Dec. 31, 2011, is deductible on your 2011 taxes. In January, your mortgage lender will send you a form documenting the precise amount of interest you paid, although most lenders also now make this form immediately available to borrowers online.

Chances are good that you paid some amount of advance interest on your home loan at closing — expect to see that on your statement from your lender, but you should also be able to find it on the HUD-1 settlement statement you received from your escrow agent at closing.

2. Property tax deductions. Again, assuming that this is the home you live in most of the time, you should be able to deduct 100 percent of the property taxes you’ve paid to your state and/or local taxing agency this year.

3. Closing-cost deductions. Discount points and origination fees paid to your mortgage lender and/or broker at closing are frequently deductible, but there are rules around this, which tax software and/or professionals can help you make sure you meet. Note that, according to Internal Revenue Service Publication 530, “You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home.”

There are various home improvements (especially those that increase your home’s energy efficiency), state and local tax credits for buying a foreclosure, and other tax advantages that might be available to you.

My advice is to work with an experienced, local tax preparer or, at the very least, use reputable tax preparation software to ensure that you get the maximum tax advantages available to you as a result of your new role as a homeowner.

By Tara-Nicholle Nelson, Thursday, January 5, 2012.

Inman News®

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

The index compared the median list price and the median annualized rent on a two-bedroom apartment, condominium or townhouse in the country’s 50 most populous cities. According to the index, the cost of buying was less than renting in 37 of the 50 cities (74 percent) as of July 1, 2011. About the same share, 78 percent, favored buying over renting in Trulia’s last index report, released in April.

Trulia defines total costs of homeownership to include “mortgage principal and interest, property taxes, hazard insurance, closing costs at time of purchase and ongoing (homeowners association) dues and private mortgage insurance, where applicable. It also includes an offset for the tax advantages of homeownership, including mortgage interest, property tax and closing cost deductions.”

“Many aspiring homeowners are on the fence about renting and buying in today’s market. Should they take advantage of falling home prices and low borrowing costs, or should they continue to rent until the economy stabilizes?” said Ken Shuman, spokesman for Trulia, in a statement.

“Price alone should never be the sole factor in deciding to purchase a home. Instead, buyers should first ask themselves if they plan to live in the home for at least seven to 10 years, could make monthly payments on the house, and have enough cash in the bank for a down payment and an additional six to eight months worth of mortgage payments.

“If you can answer ‘yes’ to each of these questions, then the cost of buying a home definitely outweighs renting in most cities.”

A price-to-rent ratio of 1 to 15 means that it’s much cheaper to buy than to rent in a particular city. Las Vegas, Detroit, and Mesa, Ariz., most favored buying among major cities.

A ratio between 16 and 20 means that it’s more expensive to rent than to buy, but buying may be better than renting “depending on personal circumstances, such as one’s tax bracket,” Trulia said. Any ratio above 20 indicates that owning is much more costly than renting in a city.

According to the index, renting was much cheaper than buying in six cities: New York; Fort Worth, Texas; Omaha, Neb.; Seattle; San Francisco; and Kansas City.

By Inman News, Tuesday, August 16, 2011.

Inman News™

According to a 2011 poll of likely voters, commissioned by the National Association of Realtors, 75% of respondents said they believed owning a home is worth the risk of potential market fluctuations.  Of those respondents who already owned a home, an even higher number, 95%, stated they were happy with their decision to purchase their home.

The good feelings towards home-ownership extend to potential buyers as well.  73% of those who do not currently own a home view the purchase of a home as a goal for the future.  Most respondents also agree that their home is their best  investment, adding that they would advise a friend or family memeber to buy a home.  One of the reasons cited for the lack of first-time buyers entering  the housing market:  difficult saving up for a down payment and closing.  Combined, these costs are seen as the biggest barrier to home ownership today.

A 2008 book by authors Gary Smith, Pomona’s Fletcher Jones Professor of Economics, and wife Paula, a business economist from Harvard, reflects similiar sentiments.  According to their research, as reported in “Homeconomics:  Why Owning a Home Is Still a Great Investment,” buying a home offers as many benefits today as it always has.  These benefits include providing shelter and a place to live, as well as providing the “fun” and enjoyment of home ownership.  The economists are quick to note the financial benefits as well, labeling them as the home dividend.  The dividend is described by the authors in the following manner.

A “home dividend” is the owners’ rent savings for a comparable house in the same neighborhood, plus mortgage interest and property tax deductions, minus the mortgage payment, property tax and attendant insurance and maintenance costs.

Rents are often higher than mortgage payments, since rents increase over time, while mortgages with fixed rates stay flat.  When  the  two amounts are subtracted, the difference between them is the amount of the monthly dividend.  This extra money can be  saved an invested in the stock market, bonds,  business opportunities or educational opportunities for family members.  If the dividend earns even a modest rate of return, it can generate an additional source of wealth for the homeowner.

This inherent dividend explains why the average homeowner has a net worth of $200,000, while the average renters worth is closer to $5,000, according to the two economists. 

In addition to the financial benefits of homeownership, however, people also report a strong emotional connection to their home.  It is viewed as a place for rest, relaxation and enjoying the company of family and friends.  Seen from this perspective, owning a home is reported as an important core value for many families.

Far from giving up on the American Dream, many people still embrace it,  and view the purchase of a home as a way to save for retirement, as well as a place to hang their hat well into the future.

from Teck Inspections August 2011 newsletter