Sep 28 2016
The wallets of majority of Americans are in great shape since the Great Economic Recession. With steadier job security and higher pay, tax perks for homeowners, especially for the novices can make the entire prospect of homebuying more attractive. Homeownership is special as it offers tax breaks which renters don’t have and this is being considered as the best time to buy a home, tax-wise.
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For the prospective homeowners, a house is more than an asset which can help them cut down their tax liabilities. First-time homebuyers should be aware of the credits and the housing tax deductions which can help them save thousands of dollars and waive off the homeownership costs. Though you may require a little more paperwork to claim these benefits but at the end of the day the savings that you make is worth the effort. Irrespective of whether you bought your home for the first time or you’re planning to do so in the coming year, here are some tax breaks to retain more money in your wallets.
? Mortgage payment interest deduction
Perhaps the biggest tax break which you can get after purchasing a home is the mortgage interest deduction. This is a deduction which covers interest which is paid up to $1 million worth of mortgage loans and this is of particular benefit to borrowers who are new with their mortgages as they have to pay more interest rate initially. As the way in which loan amortization works, the initial payments will be towards highest ratio of interest to principal and hence you will receive a major part of the tax benefit then and there. However remember that the homeowner will have to file an itemized tax return to claim the mortgage interest payment deduction.
? Mortgage Points Deduction
This is not only the interest rate that you pay on your mortgage every month that qualifies for a tax deduction. Majority of the homeowners miss out on the deduction of points which are paid to secure a home loan. Mortgage points are prepaid interest which qualifies the borrower for a low rate throughout the life of the loan. Since it is a payment against interest, it qualifies for itemized deductions.
? Mortgage credit certification
The Mortgage Credit Certification Program can offer yet another opportunity for the first-time homebuyers to get tax perks on their mortgage interest. As per the IRS, this program has been introduced with the aim of helping low-income individuals afford home loans. This is not like a deduction which reduces your taxable income. This credit directly counts against the tax bill that you owe and lowers whatever amount is taxable. This is a cool program indeed but at the same time it is not much known among the prospective homebuyers. In order to grab this credit, you would require qualifying for Mortgage Credit Certificate by either your local or state government.
? Real Estate Tax Deduction
Taxpayers who itemize their deductions on Schedule A are even eligible for deducting real estate taxes that are paid on their primary and secondary residences. There are certified financial planners who say that you can also deduct real estate taxes, provided you pay them within the year on which you file them. One more thing is that the tax that you pay should be for a home that you own as you can’t claim taxes which are paid on a property belonging to someone else.
Owning a home of your own is definitely a huge part of the American dream. Almost all Americans nurture the dream of owning their own home, no matter how costly the affair may be. Fortunately, the IRS still has several homeowner tax benefits which assist families in buying a home with ease.