When you purchased your home, you may have paid what is called “settlement” or “closing costs” in addition to the contract price. These costs are typically divided between you and the seller according to the sales contract. If you built your home, these costs were probably paid when you bought the land or settled on your mortgage.
What You Can and Can’t Deduct To deduct expenses of owning a home, you must file Form 1040, U.S. Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). If you itemize, you can’t take the standard deduction. There are three primary discussions: real estate taxes, sales taxes, and home mortgage interest. Generally, your real estate taxes and home mortgage interest are included in your house payment. Your house payment. If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. Your house payment may include several costs of owning a home. The only costs you can deduct are state and local real estate taxes actually paid to the taxing authority and interest that qualifies as home mortgage interest. These are discussed in more detail later. Some nondeductible expenses that may be included in your house payment include:
• Mortgage insurance premiums,
• Fire or homeowner’s insurance premiums, and • The amount applied to reduce the principal of the mortgage.
Minister’s or military housing allowance. If you are a minister or a member of the uni-formed services and receive a housing allowance that isn’t taxable, you still can deduct your real estate taxes and your home mortgage interest. You don’t have to reduce your deductions by your nontaxable allowance. For more information, see Pub. 517, Social Security and Other Information for Members of the Clergy and Religious Workers, and Pub. 3, Armed Forces’ Tax Guide. Nondeductible payments. You can’t deduct any of the following items. • Insurance, including fire and comprehensive coverage, mortgage insurance, and title insurance. • Wages you pay for domestic help. • Depreciation. • The cost of utilities, such as gas, electricity, or water. • Most settlement costs. See Settlement or closing costs under Cost as Basis, later, for more information. • Forfeited deposits, down payments, or ear-nest money.
For additional tax information for homeowners, please see IRS Publication 530.
Wondering how a 529 plan can help you save for your child’s future? First, you’ll need to know some basics.
What is a 529 college savings plan?
It’s a type of investment account you can use for higher-education savings. 529 plans are usually sponsored by states.
Where does the name come from?
It comes from Section 529 of the Internal Revenue Code, which specifies the plan’s tax advantages.
What makes these savings vehicles so powerful?
Tax savings. Your earnings grow federally tax-deferred, qualified withdrawals are tax-free,* and some states (like New York) have other tax benefits as well.**
Just about anybody can open a 529 account—parents, grandparents, other relatives, friends—as long as he or she is a U.S. citizen or a resident alien. As an account owner, you’ll pick investments, assign a beneficiary, and determine how the money is used. If you’re a New York State taxpayer, you can also benefit from the state tax deduction.**
How much financial knowledge do I need to start investing in the plan?
There are options for every level of investor which are described in detail in the Disclosure Booklet and Tuition Savings Agreement. Your choices will depend on how comfortable you are with risk and when you expect your student to need the money.
A beneficiary is the future student, or the person you open the account for. You can open an account for a child, grandchild, friend, or even yourself. The only rule is that the beneficiary must be a U.S. citizen or resident alien with a valid Social Security number or other taxpayer identification number.
What happens if the beneficiary doesn’t want to continue his or her education?
If that’s the case, you have a couple of options. You can stay invested in case he or she decides to attend school later, as there’s no age limit on using the money. Or you can change the beneficiary to an eligible family member.
You can also withdraw the money for other uses. However, a 10% penalty tax on earnings (as well as federal and state income taxes) may apply if you withdraw the money to pay for nonqualified expenses.
Using the money
How can I use the money in a 529 account?
Your account can be used for any purpose but please note the following:
Federal tax issues: To qualify for federal tax-free withdrawals on earnings, the money must be used for qualified expenses for the beneficiary at an eligible educational institution or to pay expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school (K-12 tuition).*
Qualified expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance; the purchase of certain computer equipment, software, internet access, and related services, if used primarily by the beneficiary while enrolled at an eligible educational institution; certain room and board expenses during academic periods in which the beneficiary is enrolled at least half-time; and certain expenses for students with special needs. Qualified expenses also include K-12 tuition of up to $10,000 per year per beneficiary.
New York State tax issues: To qualify for New York State tax-free withdrawals on earnings, the money must be used for qualified higher education expenses at an eligible educational institution. Under New York State law, distributions for K-12 tuition expenses are considered nonqualified withdrawals and will require the recapture of any New York State tax benefits that have accrued on contributions.
Other state tax issues: Outside New York, some states may require recapture of tax deductions or tax credits previously taken for K-12 tuition withdrawals. Consult your tax and financial advisors for more information.
Can 529 accounts only be used to pay for college?
No. Your 529 account can be used to pay for qualified higher-education expenses at any eligible educational institutions, including:
Does it matter what state the beneficiary’s school is in?
No. Although you’ll be investing in a 529 plan sponsored by the State of New York, the student can attend any eligible educational institution (including eligible trade and vocational schools) in the United States or abroad.
Getting started
How much does it cost to start?
There are no fees to open an account in New York’s 529 College Savings Program Direct Plan, and there is no minimum contribution amount to get started. Once you have an account, you’ll pay only $1.30 in fees per year for every $1,000 you invest in the Direct Plan (0.13% total annual asset-based fee).
How much can I invest?
529 account contribution limits are generally high—ranging from $200,000 or more, depending on the state. For the Direct Plan, you can contribute up to $520,000 on behalf of one beneficiary. This amount includes all New York-sponsored 529 savings accounts held for the same beneficiary.
What if I don’t have time for this?
We can see how you might feel that way—most parents are pretty busy these days. But starting to save early can make a big difference, and after you’ve completed your research, opening an account only takes about 10 minutes.
WASHINGTON — The Internal Revenue Service today launched the new Tax Withholding Estimator, an expanded, mobile-friendly online tool designed to make it easier for everyone to have the right amount of tax withheld during the year.
The Tax Withholding Estimator replaces the Withholding Calculator, which offered workers a convenient online method for checking their withholding. The new Tax Withholding Estimator offers workers, as well as retirees, self-employed individuals and other taxpayers, a more user-friendly step-by-step tool for effectively tailoring the amount of income tax they have withheld from wages and pension payments.
“The new estimator takes a new approach and makes it easier for taxpayers to review their withholding,” said IRS Commissioner Chuck Rettig. “This is part of an ongoing effort by the IRS to improve quality services as we continue to pursue modernization and enhancements of our taxpayer relationships.”
The IRS took the feedback and concerns of taxpayers and tax professionals to develop the Tax Withholding Estimator, which offers a variety of new user-friendly features including:
Plain language throughout the tool to improve comprehension.
The ability to more effectively target at the time of filing either a tax due amount close to zero or a refund amount.
A new progress tracker to help users see how much more information they need to input.
The ability to move back and forth through the steps, correct previous entries and skip questions that don’t apply.
Enhanced tips and links to help the user quickly determine if they qualify for various tax credits and deductions.
Self-employment tax for a user who has self-employment income in addition to wages or pensions.
Automatic calculation of the taxable portion of any Social Security benefits.
A mobile-friendly design.
In addition, the new Tax Withholding Estimator makes it easier to enter wages and withholding for each job held by the taxpayer and their spouse, as well as separately entering pensions and other sources of income. At the end of the process, the tool makes specific withholding recommendations for each job and each spouse and clearly explains what the taxpayer should do next.
The new Tax Withholding Estimator will help anyone doing tax planning for the last few months of 2019. Like last year, the IRS urges everyone to do a Paycheck Checkup and review their withholding for 2019. This is especially important for anyone who faced an unexpected tax bill or a penalty when they filed this year. It’s also an important step for those who made withholding adjustments in 2018 or had a major life change.
Those most at risk of having too little tax withheld include those who itemized in the past but now take the increased standard deduction, as well as two-wage-earner households, employees with nonwage sources of income and those with complex tax situations.
ROGER S KIM CPA PLLC -NY,NJ Licensed (Member AICPA, CFA Society.) 