Every year, congress makes changes to the tax codes. And though some details may be altered from year to year, there are always good tax breaks provided by the government. It’s a simple fact that homeowners will receive better personal tax incentives than anyone who rents. First-time home buyers can really take advantage.
If you purchased a home in 2016 or you are considering buying a home in 2017, it’s worth knowing what benefits might be available to you as a new homeowner. This is especially true if you are preparing your own taxes. You sure wouldn’t want to miss out on any tax breaks.
Let’s review some of the most notable tax breaks for first-time home buyers:
1. Mortgage Interest and Points Deductions
Mortgage interest deduction is a major tax break that benefits you every year you own your home. It helps alleviate some of the expenses of a new mortgage, which is typically interest-heavy early on. The more interest you pay, the more you can deduct in your tax return. The mortgage tax deduction can be claimed on loans up to $1 million or $500,000 if you are married and filing separately. To claim mortgage insurance deduction, Schedule A of your tax return must be itemized. Your lender will send you Form 1098 at the beginning of each year, so you know the correct amount. Mortgage points used to obtain your loan can also be deducted if it was used on a mortgage for your primary residence.
2. Mortgage Interest Credit
The mortgage interest deduction reduces your taxable income. The mortgage interest credit helps first-time home buyers by counting against your total tax bill. It actually reduces what you owe. However, the deduction does work against your credit, so both have to be factored in when you file. You will need to receive a Mortgage Credit Certificate from the state or local government to be eligible for this tax break.
3. Property Tax Deduction
As long as you are itemizing your deductions on Schedule A, you will be able to deduct property taxes paid that year. Know that it must be your primary residence, though.
4. Mortgage Insurance
According to TurboTax you can, if you itemize and the insurance contract was issued after 2006. However, once your adjusted gross income (AGI) exceeds $100,000 ($50,000 for married filing separately) the deduction is reduced.
NOTE: The mortgage insurance deduction is eliminated once your AGI surpasses $109,000 ($54,500 if married filing separately).
5. IRA Withdrawals
If you have an IRA, you can dip into it tax-free in order to use it for down payment or closing costs. A first-time home buyer will not be subject to the usual 10 percent penalty. You can withdraw up to $10,000 tax-free, though you will still have to pay regular income taxes on that money. Unfortunately, 401k plans do not provide the same exemption for first-time home buyers.
6. Home Improvement Costs
Certain home improvement costs can qualify for tax deductions and government tax rebates. Home equity loans used for improvements will quality for the same mortgage interest deductions as your primary loan. Some energy-saving home improvement costs used to qualify for tax credits. However, the regulations have changed as of January 1, 2017 and energy property tax credits no longer apply. If you did make energy-saving improvements in 2016, though, you can still claim these credits.
Being a homeowner definitely has its advantages when it comes to filing tax returns. The lending professionals at Transparent Mortgage can help you get the best terms for your mortgage loan as a first-time home buyer. Contact us at (619) 929-0199 for more information about how to get pre-approved and get started on the road to homeownership today!
Important: We are not Tax advisors, please check with your accountant or tax preparor. These are only meant to be general guidelines or ideas as to what is possible.