Tax Reduction that you may be Eligible If you are a First-Time Homeowner
By: Barbara M., Published: May 8, 2020 | Related: First Time Home Buyer Assistance
Taxes change every year. Congress meets regularly in order to review the tax code and make the necessary changes. That is why it is important for homebuyers to stay up-to-date with the latest tax changes.
Both new and existing homeowners can get tax credits. These tax credits, tax deductions and other breaks are not available to renters. If you purchased a home in 2016 or 2017, then you will need to familiarize yourself with the tax breaks. The tax breaks can lower your tax bill.
Home Mortgage Interest Deduction
The home mortgage interest deduction is one of the tax credits that new homeowners can get. It is also one of the biggest tax credits that one can get. It can cover a mortgage that is up to $1 million. The maximum is $500,000 if you are a married couple who files separately.
This deduction can greatly benefit you during the first few years because the mortgage interest rates are typically higher. You will need to itemize the interest on the Schedule A portion of your tax return. You will need to add up every deduction expense that you incurred during the year.
You will need to take advantage of this homebuyer tax credit. Your mortgage provider will mail you a form 1098 at the end of the year. It will show all of the interest that you paid last year.
Mortgage Interest Credit
You can also get a mortgage interest credit. First-time homeowners are able to get this tax credit. It differs from mortgage interest deduction. A mortgage interest deduction reduces the amount of income that can be taxed. The mortgage interest credit will be applied to your tax bill, which will reduce the amount that you owe.
This is a program that many people do not know exists. You may be able to get 20 to 30 percent of the interest that you paid to a tax credit. Here is an example of how this works. You find out that you have to pay the IRS $1,000. You get a $1,000 tax credit. You will not have to pay anything.
The tax credit is not refundable. You will not get a check if the credit is greater than what you owe.
Mortgage Points Deduction
Mortgage points are a type of prepaid interest that is paid on a mortgage. The purpose of mortgage points is to help lower the interest rate. You can also qualify for a tax deduction if you paid mortgage points. You can itemize this on your tax form. In order to qualify, your home must be less than $1 million.
Tax-Free IRA Withdrawal
It can be difficult to save up money for a down payment or closing costs. You can take funds from your individual retirement account in order to help you save money. If you take money from your IRA account for your down payment, then you will not have to pay the 10 percent penalty. You can take up to $10,000 from your retirement account.
You can get the tax-free IRA withdrawal if you are a first-time homeowner. You can take money from the 401K plan, but you will still have to pay the 10 percent penalty.
Property Tax Deduction
You will be able to deduct the property taxes that you paid. You can itemize the property tax deductions on your tax form. You will be able to deduct taxes for the year that you purchased the home in. If you purchase the home in the middle of the year, then you can claim it the following year.
Home Improvement Tax Breaks
If you get a home equity loan or another loan that uses your home as collateral, then you may be able to get a home improvement tax break. You will be able to get mortgage interest deductions. You can also get tax breaks if you make improvements and sell your home in the future.
Make sure that you keep a copy of all of the receipts. Making home improvements can lower the amount of taxes that you owe.
Home Energy Tax Credits
You can get a Non-Business Energy Property Tax Credit that ranges from $50 to $500. You can also get a Residential Energy Property Tax will cover 30 percent of the costs. You can only get this tax credit if you made changes to your home during the 2016 year.