If buying a home is on your radar, there are many ways to save on taxes and some things you should be aware of, even before signing on the dotted line. In addition to providing the best designs and styles here at True Homes, we also want to provide the best home buying experience. Buying a home can be scary for first-time homebuyers, but having the right information turns that fear into excitement and can save you thousands of dollars in the process.
Buying a home is usually thought of as a huge expense but it can actually be very beneficial when tax season rolls around. While tax laws do change from year to year, we’ll talk about a few tax deductions below that first-time homebuyers have been able to rely on for some time now.
Home mortgage interest deduction – This is one of the largest tax breaks a homebuyer will be able to take advantage of. In recent years, it has covered interest up to $1 million for a married couple or $500,000 for an individual or couples that file separate returns. However, these numbers are subject to change, so make sure to reference the most recent tax laws. Those taking out new loans to buy a house will find this tax break the most beneficial because interest tends to be higher in the earlier phase of a mortgage’s lifespan.
Property tax deduction – Property taxes are one thing many first-time homebuyers don’t consider until they are faced with them in the home-buying process. However, property taxes allow new homebuyers to deduct a considerable amount at the end of the fiscal year.
Tax-free IRA withdraws – First-time homebuyers who withdraw money from their IRA to pay for their home do not have to pay the 10 percent penalty that typically comes with early withdraws. Homebuyers can take up to $10,000 from their IRA fund without a penalty to buy a new home. However, the buyer will still have to pay taxes on the money and it should be noted that a 401k plan does not qualify for this deduction. Saving money for a down payment can take some time, so knowing this can allow you to purchase a house earlier, which in itself can save you money.
Home improvement tax breaks – Upgrades made to your home also qualify for tax breaks. Home equity loans and other loans secured through home ownership that are used to pay for improvements also qualify for the same mortgage interest deductions as your main mortgage. This is especially important if you are looking to sell your house in order to move into a larger one. Not only do the improvements help you raise your asking price, but you can use them for tax deductions when the time comes.