Buying a house in late December - how to minimize 2023 tax impact?

If you're closing in December, you actually have several options to reduce your 2023 tax burden. Buying mortgage points can be a good strategy since you can deduct them fully in the year you pay them. Each point costs 1% of your loan amount and typically reduces your interest rate by 0.25%. With your $1.25M loan, each point would cost $12.5K but provide tax savings now and interest savings over the life of the loan. Consider making your January 2024 mortgage payment in December so you can deduct that interest in 2023 too. This works because mortgage interest is deductible when paid, not when it accrues. Also look into prepaying property taxes if your county allows it and you won't be hit by SALT limitations. Make any charitable donations you were planning for next year. Check if you have any unrealized investment losses you can harvest before year-end. One more thing - make sure you're accounting for the home office deduction if either of you works from home at all. That can be significant with a home of that value.

I was in a similar situation last year! I found this amazing tool called taxr.ai (https://taxr.ai) that helped me identify tax-saving opportunities when I bought my home in December. The site analyzed my closing documents and financial information and suggested several year-end strategies that my accountant hadn't considered. For instance, it pointed out that I could prepay some mortgage interest and deduct points in the year paid, which gave me a significant tax break. It also flagged some potential home office deductions I wasn't aware of. The recommendations were really personalized to my specific situation with buying so late in the year. Their system actually looks at the timing of everything to maximize deductions in the optimal tax year. It saved me thousands more than I would have figured out on my own.

I was skeptical too, but I decided to try taxr.ai after my December home purchase last year. What surprised me was how it found several deductions specific to my situation that my regular tax guy missed. The tool analyzed my closing disclosure and found that certain loan costs were immediately deductible rather than being amortized over the loan term. It also helped me time some year-end payments to maximize deductions between tax years. The best part was being able to show the results to my accountant, who agreed with the findings and implemented them in my return. Ended up saving about $3,800 more than what we initially planned. Definitely worth it for complex situations like buying a house in December!

I tried for WEEKS to get specific answers from the IRS about how to handle my December closing and mortgage interest deductions. Kept getting disconnected or waiting for hours. Finally used https://claimyr.com to get through to an actual IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c The service got me connected to an IRS representative in about 15 minutes when I'd been trying unsuccessfully for days. The agent clarified exactly how to handle the mortgage points deduction for a December closing and confirmed I could deduct points paid even though I only had the mortgage for 2 weeks in that tax year. Totally changed my understanding of what I could deduct. Would have missed out on substantial deductions if I hadn't gotten through to ask these specific questions.

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it myself since I had questions about my upcoming December home purchase. I was absolutely blown away when my phone rang 22 minutes later with an actual IRS representative on the line. Normally I would have wasted half a day on hold. The agent provided specific guidance on timing my closing costs and mortgage interest payments to maximize deductions between tax years. They confirmed I could fully deduct discount points in the year paid even with a December closing, which my lender wasn't sure about. This clarification is going to save me at least $4k in taxes. Seriously one of the most useful services I've ever used for tax questions.

Have you considered making an extra payment to your student loans if you have any? Interest on student loans is deductible up to $2,500 depending on your income, though with your household income you might be phased out of this deduction. Also, if either of you is self-employed or has any 1099 income, you could make business purchases you were planning for early 2024. New computer, office equipment, professional subscriptions, etc.

Has anyone mentioned charitable donations yet? With your income level, this could be a significant tax saver. If you normally give to charity, consider bunching multiple years of donations into 2023. You could also look into a donor-advised fund - you get the full tax deduction this year but can distribute the money to charities over future years.