Home Buyer Resources December 13, 2018

5 Reasons To Be Thankful If You Are A First Time Home Buyer

Tax breaks for first time home buyers are the perfect gift to save money this holiday season!

Buying a house is something many Americans dream of their whole lives.  It is a real accomplishment to own your own home and many feel a sense of pride when receiving their first set of keys.  If you are a first-time home buyer keys are not the only thing you will be receiving.  There are certain tax breaks you can take advantage of if this is your first time owning a home.  This can be immensely helpful when you consider all the money and planning that goes into buying a new home including saving up for a down payment, closing costs, and handling necessary incidental costs that always seem to come up when you least expect them.

  1. Mortgage Interest Deduction– This covers interest on loans up to $1 million or $500,000 for married couples filing separately and is one of the largest tax breaks you can receive.  This is crucial for new homeowners because new borrowers have a lot higher interest on their mortgage in the early years of a loan.  In your taxes, the interest will be itemized on a Schedule A form and all your deductions will be added to this form.  If your itemized deductions are higher than your standard deductions it will result in savings.  When you receive your 1098 form around tax season remember to claim your interest!
  2. Makeover for less Money– Home improvement can be costly.  A facelift for a house can be pretty pricey but fortunately if you use a home equity loan or another loan secured by your mortgage you can get some tax breaks.  The money you use to upgrade your home will qualify as a mortgage interest deduction.  This means your improvements can save you money by lowering your taxes and tax basis.  Plus, there is the bonus that your house will sell for more than what you purchased it for with all of the improvements made.
  3. Property Taxes – Now that you have a property you have property taxes.  On your Schedule A form you can deduct property taxes on your primary residence.
  4. Mortgage Interest Credit- You can save some cash with the federal government’s mortgage interest credit. The mortgage interest deduction lowers your taxable income, while the mortgage interest credit counts directly against your tax bill. To see if you qualify for this credit, you can fill out the IRS Form 8396. Imagine you owe $600 to the government in taxes and you’re approved for a $600 mortgage tax credit. This means your credit would cover your tax bill. In order to qualify, you would receive a Mortgage Credit Certificate at the time of purchase. A Mortgage Credit Certificate will tell you how much interest you can claim for a credit. You can’t claim the mortgage interest deduction and mortgage interest credit at the same time. This can be complicated and advice from a CPA might help you pick the best option and save you the most.
  5. Energy Tax Credit- It is important to be environmentally friendly, but it also saves money when you use less power.  Now not only is saving energy smart for the environment, but it is also smart for your budget.  The government is now rewarding people who save energy through a tax credit.  The energy tax credit covers 30% of the cost of an energy efficient appliance or product in your home.  They don’t even have a price limit for the cost so 30% of whatever that appliance uses is on Uncle Sam’s dime.  This is only applicable to purchases made in 2017 or later but will save you money on your taxes and on your overall energy bill.

Owning your own home is exciting and rewarding all on its own but saving some money is something extra to get excited about.  There are plenty of things to keep in mind when owning a home but if you use these tax breaks you can save a little extra money and focus more on enjoying your new home!