Tax Preparation & Buying a Home
Preparing for and filing your taxes can be your best or most dreaded time of year. For some, it’s an easy process gathering W-2s and waiting for a refund, while for others it involves pages of documents, 1099’s, receipts and and researching new tax laws, all in effort to avoid paying taxes they do not owe.
Owning a home comes with significant tax incentives. Often the choice to purchase a property in the first place is made somewhat around how it will influence your taxable income and your ability to build wealth. In addition to being able to deduct mortgage interest from your income, homeowners can also deduct property taxes, and avoid paying capital gains taxes on equity when they choose to sell. Homeowners can also benefit from other significant deductions depending on what their property is used for, making tax time slightly more labor intensive for a homeowner, but well worth the savings.
Many people hire an accountant who can make filing taxes much easier and a good CPA can generally offset their fees in tax savings by being more knowledgeable on laws and deductions than the average person. While the accountant can help reduce the tax owed, few people realize that the same deductions that their CPA may find and claim, can potentially reduce an individual’s income enough so that they cannot qualify for a loan that they can in fact, afford.
Are you planning on purchasing your first or subsequent home in the next 2 years? When it comes time to qualify for your loan you will need much more than a downpayment and solid credit scores. Plan on providing:
*Two years of W-2s and at least three months of pay stubs
*Bank, investment and tax documents: at least three months of bank statements, up to two years of tax returns, and 1099’s from any investments.
*Profit and loss statement from self-employed borrowers.
*Rental property income (if you have a rental)
*Gift letter (if someone has gifted you funds)
*Potentially other statements or documents if you are self-employed or have other sources of income or debt.
If your tax returns look like you make less than you do because of (perfectly legal) deductions to help save on taxes, it could translate to a much longer and complicated loan qualification process, especially for the self-employed. At Options will help you prepare for a future home purchase by giving you the power of knowing and by educating you about what documents and statements you need to qualify. If a purchase is in the near future, we can work together with your CPA before you file to help make sure that your return reflects an income that will qualify you for the loan the works for your unique situation.
Please watch our video about tax preparation and we look forward to working with you on your home purchase.