6 Tax Breaks for New Homeowners

Save as much money as possible on your tax returns this year

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Jan 21, 2021

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If you’re a first-time homeowner, you’re probably rolling your neck at the years of mortgage and insurance paperwork in front of you, and that’s before you even begin to face taxes.

These tips will help you sort through everything, and they could help you save thousands of dollars.

1. Deduct the Interest you Pay on your Mortgage

This applies whether the home is owned by you, your spouse, or jointly.

However, there are some exceptions, including:

Your lender will issue you a form 1098, which will tell you the interest you paid that year.

2. Deduct Points

If you offer prepaid interest up front, you can improve your mortgage and get points. With the points, you can qualify for a lower interest rate over the life of your mortgage loan, and you can qualify for a tax deduction.

The points must be paid on a loan secured by your main home, and the loan must be for purchasing or building your main home.

3. Deduct Private Mortgage Insurance (PMI)

PMI protects the bank in case you default. PMI is only required sometimes, typically if you can’t afford a down payment. Whether or not you can deduct PMI depends on the year and your interest level.

In 2017, if your household income is less than $109,000, or $54,500 for married couples filing separately, you can claim a tax deduction for the cost of PMI for both your main home and any vacation homes. For every $1,000 that your income exceeds that limit, PMI deduction is reduced by 10%.

4. Real Estate Taxes are Deductible

Most banks and mortgage lenders will factor the cost of your real estate taxes into your mortgage and put it into an escrow account.

You can deduct the amount paid out of the escrow to cover the taxes (see the amount on a form 1098 at the end of the year). Otherwise, you’ll deduct what you pay out of pocket directly to the tax authority.

And, you should know, if you reimburse the seller for the taxes that you already paid at settlement, you can deduct those as well. Those won’t show up on a form 1098; they’ll be on your settlement sheet.

5. Itemizing Your Deductions

In order to get these tax benefits, you have to itemize your deductions on your tax return. Usually, that means switching from a form 1040EZ to a form 1040 to list expenses on Schedule A (where you would deduct charitable donations, medical expenses, and unreimbursed job expenses).

For itemizing to make financial sense, you want to have more total deductions than standard deductions.

In 2017, the standard deduction for single taxpayers and married couples filing separately is $6,350, and for married couples filing jointly, it’s $12,700. Being a homeowner makes it much easier to reach those numbers.

6. Capital Gains Tax Relief

When reselling your home, you can avoid paying taxes of up to $250,000 (if you’re single or a married couple filing separately) or $500,000 (if you’re a married couple filing jointly), as long as you’ve lived there for at least two of the last five years.

Don’t let the pile of paperwork stress you out. Check to see if any of these tax breaks apply to you so you can save money! Contact a HER agent to find your first home!

View the largest and most accurate selection of real estate in Ohio by HER, REALTORS® >

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Source article: https://www.trulia.com/blog/6-financial-perks-first-time-homebuyer/

October 10, 2017
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