Buying your first home is an expensive endeavor. Yet there are a number of tax credits that first-time homebuyers can take advantage of. Sometimes congress changes the available tax breaks or adjusts certain aspects of the law. Therefore, you should keep an eye on the tax law when you get ready to file your taxes. Below are some of the most popular tax credits for first-time homebuyers.
If you paid points when getting your mortgage, you may be eligible for a deduction. In order to take advantage of this deduction, your settlement contract has to make reference to the points. Plus you will have to itemize when filing your taxes instead of using the standard deduction.
Property Tax Deductions
Property taxes can be deducted when you itemize on your tax return. First-time homebuyers should definitely take advantage of this deduction, but it’s not limited to first-time homebuyers. In order to claim this deduction, the property should be your main residence or a vacation home—not a business property.
Mortgage Interest Credit
Claiming a mortgage interest credit can lower the amount of taxes you owe. If you want to take advantage of this credit, you have to make sure you received a Mortgage Credit Certificate. The certificate is usually sent to you by your local government when you first receive your mortgage, and it lists how much interest the credit is worth. If you take advantage of the mortgage interest credit and the mortgage interest deduction, the credit will be reduced based on how much of a deduction you claim.
Mortgage Interest Deduction
A home mortgage interest deduction is one of the most popular tax credits for new homeowners. When it comes time to file your taxes, the bank or loan provider will mail you a tax form called Form 1098. The form details how much you paid in interest for the previous tax year. New homeowners should definitely take advantage of this deduction since mortgage payments have a higher percentage of interest than principal in the beginning. Keep in mind that in order to deduct home mortgage interest, you will have to itemize. For many homeowners, itemized deductions can add up to be larger than the standard deduction.
Typically when you make withdrawals from your IRA before you are 59 ½ years old you face a 10% penalty. However, when you use the withdrawals for a home purchase this penalty can be waived. The caveat is that you cannot withdraw more than $10,000.