Can You Claim a Down Payment on Purchasing a House on an Income Tax Return?

by Fraser Sherman, Demand Media Google
    If you have a home office, you can depreciate part of the down payment.

    If you have a home office, you can depreciate part of the down payment.

    You can claim a lot of tax write-offs when you buy a house, but your down payment isn't one of them. That applies whether you're buying your first home, a vacation home or an investment rental property. Down the road, however, you may be able to write off some of the down payment and the mortgage loan through depreciation.

    Depreciation

    If you use part or all of the house for business -- a home office, storage space for inventory, a rental home -- you can deduct depreciation: you take a write-off every year to reflect how age reduces the building's value. With a rental house, you depreciate the home's value, based on purchase price, minus the value of the land. If you use 8 percent of your home for business, for example, you depreciate 8 percent of the home's value.

    Calculating Depreciation

    If your purchase contract for the house didn't specify the value of the land, look up the most recent tax assessment at the county offices. This should include separate appraisals for the house and the ground under it. For real estate, you use "straight line" depreciation, in which you deduct an equal share of the basis -- the cost of the house -- every year but the first and last. You depreciate rentals over 27.5 years and other business uses over 39 years.

    Closing

    When you close on the house, you can write off some of the costs you pay other than the actual down payment. You can write off sales taxes on the purchase as an itemized deduction on Schedule A, as well as any property taxes due at closing. If you pay points -- prepaid interest on the loan -- those are deductible too.

    Business

    If the house you bought is a rental property, you can claim taxes and points as a business expense. This works out well, as you can deduct them even if you don't itemize. However, you may not be able to deduct rental losses from non-rental income -- it depends how actively you manage your property. When you use part of the house for business or rent out a couple of rooms, you can deduct the appropriate percentage of your taxes, just as you did with depreciation.

    About the Author

    Fraser Sherman is a former reporter with the "Destin Log" newspaper and now freelances full-time. His work has been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life," and he's the author of three film reference books, including "Screen Enemies of the American Way." He specializes in finance and tech articles.

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