Adjust withholding tax to spread out deduction

REAL ESTATE MAILBAG

October 31, 1993

QUESTION: I soon will buy my first house and will have a huge deduction to take off my taxes. But I don't want to pay out so much for withholding taxes during the year and only get the money back next year when I file my taxes. What should I do?

ANSWER: One of the primary financial advantages of homeownership is the tax deduction allowed to the homeowner. Typically, a homeowner can deduct from income all mortgage interest plus all real estate taxes.

Therefore, the amount of interest and taxes to be paid in the coming year should be added together and divided by 12 -- this equals the monthly tax deduction the home will provide. This multiplied by an approximate tax rate is equal to the amount you will save off your taxes and which, therefore, can be subtracted from withholding.

Next, contact your employer's accounting or payroll department about revising your W-4 withholding schedule. You will be able to receive more of your tax savings now rather than at the end of the year after you file your tax return.

Q: When I put a contract on a house, it is contingent on a home inspection. What happens if the inspection reveals problems with the house? Under what conditions can I back out of the contract?

A: Most home purchase contracts today contain a "home inspection" contingency clause that provides for a home inspection of the house by a home inspector hired by the buyer. The inspector will check the structure (roof, foundation) and systems (electrical, water, sewer) to see if they are sound.

If the inspection (which typically costs between $200 and $500) reveals serious problems, the buyer can cancel the contract if the seller is unwilling to make repairs.

More often, the buyer and seller negotiate over what repairs need to be done and renegotiate over the price, perhaps lowering the price based on problems found by the inspector.

Often, a buyer will not ask that all the repairs on a home inspection report be done, because a seller may simply refuse, expecting to lose the contract but to find another buyer who will insist on fewer repairs.

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