With the larger number of foreclosures being purchased, it may be wise to reiterate that if the tax exemption is changing from unexempt to homestead on 1/1/2009 because you bought it, there is a definite tax benefit to December versus January, since the exemption status is just a snapshot on January 1. The tax savings are typicallly 20% of the tax bill. on the property.

Harder to answer than just the homestead exemption idea. There are lots of factors you can add in to really quantitfy it. How much rent do you pay. How much appreciation is in the area of the home you plan to buy? If it is 15-20% appreciation, waiting until December could cost you a ton of money. Interest rates have been going up and if you listen to the Dallas Fed chairman he's pushing for them to go up more. If they do, just a minor increase can wipe out any savings you plan to get on the tax bill. I typically tell my customers don't buy a house based on any tax savings. Consider that a bonus.

There are no liabilities in buying in December other than a Christmas that might be difficult.
From a income tax standpoint, you could have moving expenses to write off in the current year. See your CPA about that.
From a property tax standpoint, it is a good time to buy. You can file for your homestead exemption in January. If you are not from this area you might not be aware of what that means. It is a discount sometimes up to 20% off your taxes because it is the home that you live in. Not all cities have the same homestead exemption. Ask your realtor about the different tax rates in different cities as well as the amount of homestead exemption.
December is a good time of the year to buy because with fewer number of buyers there is a less likely chance that you will have multiple bids on one home. That can cause you to pay a little more for the house than you would if the homeowner has had few people looking and only your offer. The only disadvantage is that there is less inventory to choose from.
The best month to buy a house is the month that makes most sense for your life. How busy are you with your job, what is going on with your family, when is your lease up if you are leasing and what is your financial situation?

Real estate tax are calculated in arrears. Taxes paid in 2009 were earned in 2008. They are known after the invoices are calculated and printed in October. The invoices are mailed at that point, although sometimes they have been mailed a little late, and payment is due in January. The exemptions are generally set according to the status on 1/1 of each year. If it is a homestead on 1/1, then it is a homestead all year.
Your liability for payment of taxes at closing is usually a proration of the months and days left until 12/31 compared to the period from the prior 1/1 to the closing date. The whole tax bill is normally divided proportionately between buyer and seller according to the closing date.
If you close, for example, on 12/1 and the tax invoice shows $6,000 due 1/1, then the closing agent will collect $500 from you and $5,500 from the seller. If, for example, you close 12/30, then you will contribute $32.87 and the seller will put in $5,967.13.
When the invoice is already published, the closing agent normally pays the taxes due -- in the example, $6,000. Prior to 10/1, no one knows the exact amount due 1/1, so a proration of the previous year's bill is used to collect from seller. It becomes a credit on your side, which you should use to populate your escrow account, along with your contribution for taxes.
In either case (before or after 10/1), your lender will normally require an escrow account to put aside money for tax payments, and that is 2 months' worth of tax payments. Your escrow payment for taxes will be 1/12 of the last tax bill going forward with each mortgage payment. So, your total payment at closing will normally include this 2-month amount, not just your current liability for the taxes due 1/1.


Federal taxes on income are different, but based on the numbers above. Most people use cash accounting, meaning payments are counted when they're actually paid, not when they're due. So, even though the closing agent may collect 2 months taxes, you can't deduct them for income tax purposes until they are actually paid to the county/city/school. You can pay the taxes due 1/1 on 12/31 and deduct them on your Schedule A, even though you paid them early.

Putting these two things together, is there a best time for tax purposes?
Yes, but it has to do with other deductions for income tax, not local property taxes unless the exemptions are changing. As mentioned, exemptions are a snapshot as of 1/1. So, if the property is currently unexempt but it will be your homestead because you will be an owner-occupant, then buying later means paying less at the unexempt (higher) rate. Remember to file your homestead exemption.
Also, if you are an investor, rather than an owner-occupant, the answer is different.
You may deduct points paid on a mortgage in the year paid. On investments you may deduct insurance and other maintenance expenses when paid. These affect your deductions. True, your interest deduction will be smaller the later in the year you buy, but this makes it like property taxes.

The more important question is when is the best time given both taxes and market considerations to buy or sell?
The peak season where most demand is present is the summer. It begins in spring and ends in early fall. This doesn't mean people don't buy houses in winter, but the demand is much lower. Your best pricing for a buyer would occur in winter. Also, on new construction the same thing holds true -- builders will deal in December, not to have to carry a property on inventory into the next year.

We really appreciate the relocating employees who come around Thanksgiving, since we can get good deals on new construction for them or they can have their pick of the existing homes with better prices. They get a little bonus come April 15 from tax deductions and moving expenses, and everyone goes home happy.

Tax rates are set in September, and from a standpoint of knowing exactly what the taxes are that will be due it is slightly beneficial to close between September and December. Your taxes are prorated for the current year with an amount presumed to be equal to the taxes due from January 1st till closing date going towards you, the buyer. If the tax rates actually turn out to be higher you might be stuck covering a small portion of the tax bill though you always have the right to go to the former seller and ask them for the remaining taxes. Of course, if you closed before September and the tax rates lowered you would be in better shape with the distant possibility that the former seller will approach you for the balance of the tax money.

Probably not a huge deal at all. I don't know that I would purposefully delay closing until this time of year.

Also if this is your first home it could be a tax disadvantage to close so late in the year as being able in many cases, to take 12-18K off your taxable income for home interest is huge!

Good luck!

From a tax standpoint, there really isn't much of a difference what time of year you purchase. Yes, the previous answers are correct that you cannot file a homestead declaration until the year you lived in the home on January 1st. So if you purchase any time in 2008, you cannot file your homestead designation until after 1/1/2009.

That being said, if the property you are purchasing is an existing home (not new construction) and the present owner has filed a declaration of homestead in 2008 or prior, then the 2008 taxes will be based WITH a homestead exemption. In other words, you would need to make your declaraion in 2009 to KEEP taxes from going up.

Say you purchase in August 2008. The seller will pay the portion of taxes from 1/1/2008 to the closing date of the sale. You are going to be responsible for the entire 2008 tax bill, based on the 2008 tax assessment which is done around April-May. Taxes in Texas are due in December, but payable as late as January in most cases. Prior to purchasing a home, make sure to check what tax exemptions have been filed for the property you are buying. If the home does NOT have a homestead exemption already filed, then your taxes will go down the next January when you file that designation. However, if the current homeowner has filed an Over 65 exemption and you are not over 65, the taxes will be going UP next year because that exemption will be going away.

The most impact on property taxes comes from purchasing new construction. To make sure you understand the first and second year impact of taxes if considering buying a new construction home, make sure you get good advice from your mortgage professional and Realtor.

Good luck!

It is best to live in the home January 1st of the tax year in order to qualify for Homestead tax exemption. Homestead exemption reduces the amount of taxes you will pay for 2009. You want to close before December 31st. Please keep in mind the fact that are interest rates are not coming down and if anything, are on the rise.
When you are ready to begin looking at homes, I will be honored to work hard for you!

lucy@webuyitwesellit.com

Dr. Mathew,

With respect to your taxes, it's best to buy by December. As long as you are closed on the home by the end of the year, you will get to file your homestead exemption - which lets you take a certain amount like $20,000 off the tax appraised value of your home - and you'll pay your taxes off of that lower amount for the year. If you wait until January 1 to close, you will have to wait until 2010 to file homestead.

Happy to help,
Terri Hayley

Every month is a good month to purchase based on what area town and all the particulars involved in purchasing a home, plus the tax benefits as a home owner, and etc. NO MATTER WHAT the day you take possession you are responsible for the taxes on the property. Contact my office if we can assist 972-699-9111 we offer a buyer rebate program earn up to 50% of our commissions. http://www.lynn911.com