On top of all of the other benefits of owning a new home—building equity, customizing your interior and exterior to your liking, more predictable costs, and pride of ownership—it can also be beneficial during tax time, especially for first time homebuyers. If you’re thinking of buying a new home in 2017, from True Homes or otherwise, you should take a look at the additional tax advantages you can take look forward to if you purchase this year. Here are seven tax breaks new home buyers can enjoy:
1. Mortgage interest credit
One unique tax break opportunity for first-time homebuyers is the federal government’s mortgage interest credit. Unlike a mortgage interest deduction which reduces your taxable income, the mortgage interest credit lowers what you owe by directly counting against your tax bill.
Keep in mind that the credit is not refundable, so you won’t receive a check if the credit is larger than what you owe in taxes.
In order for first time homebuyers to be eligible for this tax break, a state or local government has to have issued you a Mortgage Credit Certificate, typically issued at the time you originate the mortgage.
2. Mortgage points deduction
You can even deduct what you pay in points to obtain the mortgage loan in the first place. What are mortgage points? They’re prepaid interest that can help a borrower qualify for a lower interest rate over the life of the loan. And, they can qualify for a tax deduction as well.
You have to itemize on your return to claim this deduction, and your settlement disclosure statement must cite these fees as “points” and your home loan must be for $1 million or less.
3. Deducting your home’s mortgage interest
This is one of the biggest tax breaks a first-time homebuyer can take advantage of when purchasing a True home or any new home. The mortgage interest deduction covers interest paid on loans of up to $1 million (or $500,000 if you’re married but filing a separate return).
This deduction can be especially beneficial for borrowers with new loans because interest charges on mortgages are typically steeper in the early years of the mortgage’s term.
You don’t want to miss out on this tax break for homeowners. Your loan provider should send you Form 1098 shortly after the tax year ends to show the amount of interest you paid the previous year.
4. Property tax deductions
Property taxes are another one of the many tax breaks for homeowners that are available to you. Taxpayers who itemize deductions on Schedule A are also eligible to deduct real estate taxes paid on a primary residence. So keep in mind that you can deduct property taxes paid during the year for which you’re filing.
5. Tax-free IRA withdrawals
Coming up with the money for a down payment and closing costs is a major consideration for first-time homebuyers. Luckily, the IRS says you can pull funds from your IRA to help—up to $10,000 without penalty to buy a home (although you’ll still need to pay taxes on the money).
6. Tax breaks for home improvements
Not only will it make your home more beautiful and personalized, but home improvements made to your home can qualify for a tax break! If you use a home equity loan or other loan secured by your home to finance improvements, the loan will qualify for the same mortgage interest deductions as your main mortgage.
If you’re looking for a new home, it pays to look into the available tax breaks for homeowners. And when you’re buying a True home, full of value and more square feet for your money, you can rest assured it’s an even better investment in your future. Contact us today to see which True homes floorplan and community would be right for you.