It's that time of year again!! Uncle Sam is knocking on our doors. 8 Helpful Hints for New Homeowners during tax time:
1. Mortgage payment interest deduction
The biggest tax break after buying a home is often the mortgage interest deduction. This deduction covers interest paid on up to $1 million worth of loans and is especially beneficial for borrowers with new mortgages, since they pay more interest.
2. Mortgage credit certification
The Mortgage Credit Certificate Program can provide another opportunity for first-time buyers to get a tax break on mortgage interest. According to the IRS, this program "is intended to help lower-income individuals afford home ownership." Unlike a deduction, which reduces your taxable income, this credit directly counts against your tax bill and lowers what you owe.
3. Mortgage points deduction
It's not just the interest paid in monthly mortgage payments that qualify for a tax deduction. Mortgage points are prepaid interest that also qualifies the borrower for a lower interest rate over the life of the loan. Because it's still a payment against interest, it qualifies for deductions.
4. Tax-free IRA withdrawals
As you're getting ready to buy a home, consider pulling some funds from an IRA to help cover a down payment or other costs.
5. Real estate tax deduction
You can even deduct real estate taxes, as long as they were paid within the year for which you're filing. The tax paid must also be for a home you own; you can't claim taxes you paid for someone else's property.
6. Home improvements
Home improvements can qualify for deductions in two ways. If you use a home equity loan or other loan secured by your home to finance home improvements, these loans will qualify for the same mortgage interest deductions as your main mortgage. While it might be smarter to pay in cash if you can afford it, claiming this deduction will still help you save if you choose a loan.
Second, tracking home improvements can help you out when the time comes to sell. If your home sells for more than you paid for it, that extra money is considered taxable income. But you can lessen your tax liability by writing off home improvement costs.
7. Home office deduction
This deduction can include expenses like mortgage interest, insurance, utilities, and repairs, and is calculated based on "the percentage of your home devoted to your business activities," according to the IRS.
8. Home energy tax credits
For homebuyers or homeowners looking to make their home a little greener, the Residential Energy Efficiency Property Credit can help offset the cost of energy efficiency improvements.