Tax Breaks for First-Time Homeowners
If you're thinking about buying your first home, you have more incentives for purchasing one other than the good deal you can land in today's housing market. Home ownership comes with some pretty nifty tax breaks, besides the pride of owning your own place and building equity (instead of throwing away your cash on rent).
So, as you patiently wait in line at the post office today to send off your income tax returns to Uncle Sam (hopefully, you're not there until midnight!), look on the bright side and consider the tax perks of owning a home — instead of feeling squeamish about buying one.
Here are the tax benefits, as described by Bankrate.com:
Mortgage interest
All the interest you pay on your monthly mortgage is deductible, unless your loan is more than $1 million. Interest tax breaks also apply to the extra cash you pull out from refinancing, or if you decide to get a home equity loan or line of credit later on.
Points
If you paid points to get a better rate on any of your various home loans, the points offer a tax break. (Points are interest charges you pay upfront when you close on your loan.) You can deduct points in the tax year you paid them. If you're refinancing a loan, the points are tax deductible over the life of the loan.
Property taxes
A big part of most monthly loan payments is taxes, which go into an escrow account for payment once a year. This amount should be included on the annual statement you get from your lender, along with your loan interest information. These taxes will be an annual deduction for as long as you own your home.
Mortgage interest, points and property tax deductions are itemized deductions you indicate on Schedule A of IRS Form 1040. Get the entire scoop on Tax Information for First-Time Homeowners from Publication 530 from the IRS.
When you sell
When you decide to move up to a bigger home, you will be able to avoid some taxes on the profit you make. Here's how it works: You need to have owned the property for two years and lived in it for two of the five years before the sale. For singles, $250,000 of the sale is tax-free, while married couples (joint filers) enjoy a tax break for $500,000 in sales gain. Learn more about Selling Your Home in IRS Publication 523.
Stay tuned for possibly more tax credits in the coming year, as Congress and the White House try to hammer out a plan to revive the battered housing market.
Got hot local housing tips or a story you want to share? Contact Dean Golemis at openingdoorsblog@HomeFinder.com.
Comments
When I purchased my home, my lender did not reccommend that I set them up to escrow and collect my property taxes. Is there an additional tax deduction (other than the standard property tax deduction) because the lender is holding funds in escrow that I missed out on because my lender reccommended against this?
Joe, if I understand your question correctly, yes, you can also deduct property taxes that you yourself pay directly to your local "taxing authority" (to use an IRS term), and not only through an escrow account. You can also deduct property taxes you pay on any rental properties you own. Those taxes are itemized on Schedule E of form 1040, where you report rental income. Does this answer your question?
In a joint ownership, can you split the tax break? A friend and I want to purchase a place.She will be putting the down on it but not live there. And I will make the monthly mortgage payment but I will be living there. Is there a way for us both to both reap the benefits of these tax breaks?
Yes, provided that both of you legally agree to “joint tenancy” on the deed when you buy the property. In order to deduct mortgage interest and points, you and your friend will have to file separate income tax returns (unlike mar,ried couples, who file joint returns for their combined income). This means both of you must decide how to divide the deduction. You may split it depending on how much money she puts down and how much mortgage you pay, or simply go 50-50. Your call. It’s a good idea to get some legal advice on all the pros and cons of joint tenancy before you guys commit to buy together. Or make it easy on yourselves and tie the knot. :)
Thanks!
In a joint tenancy, are the home owners required to split the tax deductions related to the house? Can one owner claim the entire deduction if agreed upon by the other homeowner?
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