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Posted by Paul Thomas, CPA on March 11, 2008, 7:55 am
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> Mike Wellman wrote:
>
>>
>>>Hello all! I have a friend who wants to buy a house for the first time
>>>this year. She is planning on telling her employer not to take out any
>>>taxes for a few months so she can save up additional money for a down
>>>payment. She says that she can probably make up the taxes that she
>>>will owe from the deductions of the new house.
>>>
>>>Is this possible? Is this a wise-move?
>>>
>> These are the type morons that are now claiming the mean mortgage
>> company took advantage of them and they need the taxpayers to bail
>> them out. Of course it is idiotic.
>
> I don't know that I'd be so harsh. She should look at her taxes for this
> year to plan ahead. She should have some idea of the property tax and
> mortgage interest for 2008, as well as her state tax and charitable
> deductions. These cover most of the common schedule A deductions. I'd then
> suggest adjusting her withholdings (W4) only enough to get close to zero
> owed or refunded for this year. If she makes no adjustments when she buys
> the house, she's likely to get a large refund, lending uncle Sam some
> money. If she can't buy the house without the borrowing from her taxes
> due, she cannot afford the house and should get very frugal to save up.
> Not to pick your wording apart, but "probably make up the taxes" doesn't
> sound too confident to me. She should leave the closing in a strong
> position, not a month or two away from bankruptcy if she has some
> emergency.
> Joe
Remember the later in the year she waits to buy is that much smaller of a
deduction for mortgage interest and property tax that you can get from the
house.
Consider cutting back elsewhere with personal spending to create that
savings.
Of course, if she anticipates a large refund this year (because she got a
large refund this year) then change her withholding accordingly to have less
withheld should be part of her plan to generate the savings necessary for a
downpayment.
--
Paul A. Thomas, CPA
Athens, Georgia
--
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