Can I Deduct the Purchase of a New Home & Business on My Taxes?

New Home Purchase

The various closing costs or fees that are added to the cost of buying your new home, include but are not limited to: appraisal fees, application processing fees, transfer taxes, title search fees, credit report fees, closing or escrow fees, title insurance fees, recording and underwriting fees, loan discount points, prepaid interest and property taxes. The discount points, prepaid interest and property taxes are the only closing costs from the purchase of your new home that you can deduct when filing your taxes, if you itemize the deductions on your annual tax return. When you purchase your home, the price you paid plus most of the closing costs becomes your tax or cost basis. For tax purposes, this becomes important for calculating a gain or loss when you sell your home.

Throughout the years of owning your home, there are a number of tax deductions you can take advantage of as a homeowner. The interest on your mortgage loan is tax-deductible up to a point: a maximum of $1 million in mortgage debt or $500,000 if you are married filing separately, as of the time of publication. Other tax-deductible home expenses include equity loan interest, home improvement loan interest, property taxes, home office deduction, selling costs and, in some cases, moving costs if you move at least 50 miles away for a new job.

Although the purchase price of a business is not tax-deductible, many of the costs you incur to start and operate your business can be deducted on your tax return. According to the Internal Revenue Service, business expenses are described as the "cost of carrying on a trade or business ... if the business is operated to make a profit." The IRS goes on to classify deductible business expenses as those that qualify as both ordinary and necessary. Ordinary expenses are costs that are commonly accepted as part of doing business in your particular trade or industry. Necessary expenses are those that are somehow helpful and appropriate for the efficient operation of your business, within your particular trade or industry.

Some business expenses must be capitalized, rather than deducted from your taxes; they are known as capital expenses. Capital expenses are those items considered to be long-term assets or investments in your business. Generally, there are three types of business expenses you must capitalize: business assets, improvements and business start-up costs. Capitalizing an asset means you cannot take the full deduction for the cost incurred that year. The asset is categorized as a capital asset, and you are allowed to take annual depreciation deductions on your tax returns.