Homeowner Taxes

A simple guide to help homeowners understand tax payments and options such as escrow accounts and federal income tax deductions.

It has been said that there are only two certainties in life: Death and taxes. As a homeowner, you are responsible to pay your fair share of taxes on your home and surrounding property. The calculation of taxes varies from state to state as well as city to city, so be sure to check with your local tax collector for the details.

Homeowner's taxes are usually due on either an annual or semi annual basis. Again, this varies from city to city. Most cities have payment options to make the taxes a bit easier to pay. Paying $500 every three months is much easier than paying $2000 per year and since you're still paying the same amount of money, your tax collector really doesn't have anything to complain about.

When you are about to close on your mortgage, you should be sure to talk to your loan officer about setting up an escrow account. An escrow account is an account set up by your mortgager in which you pay money into each month while you are making your mortgage payment. Whatever the dollar amount of your taxes is, simply divide that amount by twelve (the twelve mortgage payments which you would pay in a year). The result is the monthly amount of your taxes and the extra amount that you would pay each month along with your mortgage to cover your annual tax bill. The mortgage company will pay the tax bill for you, so you don't even have to worry about it. Just send your tax bill to the escrow address provided to you when you set up your account.

If your mortgage is sold by your financial institution at some point, all of your information should be transferred with your account. Just to be safe, if this situation happens to you, check with your new mortgage company to make sure that they have all of the correct information. You are ultimately responsible to pay your taxes, not your mortgage company, no matter what anyone might tell you.

You can also have your annual homeowner's hazard insurance paid through your escrow account. Although the annual premium is much lower than your property tax bill, $30 per month is much easier to come up with than a $360 bulk once a year.

Another great reason to set up an escrow account is the fact that you will be earning interest on all money that you have in the account. Your mortgage/escrow company will send to you, on your monthly mortgage statement, a list of all taxes and insurances paid by your escrow account, as well as any deposits made into the account, both from you and interest earned.

Since you now have mortgage interest to deduct on your federal income tax, it would be wise to itemize your deductions. Not only is your mortgage interest tax deductible, put so is your property tax which you pay on your home. While you're at it, go ahead and deduct the property taxes that you might pay on your car, boat or any other major expense in which you pay property taxes on. It's completely legal, so why not take advantage of every deduction that you are entitled to.

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