Tax Breaks For First-Time Home Buyers
If you’re still renting a home or apartment and haven’t quite made the transition to home ownership just yet, there’s a good chance you’re already familiar with many of the benefits that coincide with becoming a home owner. From the financial aspect of price appreciation and building equity to simply the piece of mind of having something that feels more long-term, buying a home for the first time can be a thrilling experience, even despite it likely being the largest financial decision you’ll ever make.
But along with all the obvious advantages, another primary benefit to owning your own home are all the various tax breaks you’ll receive once singing on the dotted line. For just about any home owner out there, various tax deductions are almost always available for you to take advantage of, as long as you’re up-to-speed on current rules and regulations.
Above all, the biggest savings available will likely be from deducting the annual interest paid on a mortgage from your year-end income, which is a deduction anyone can take up to $1 million of debt on a home loan. And as a first-time buyer, we’ll assume you qualify. Of course everyone’s tax situation is different, but assuming you’ve taken out a 30-year, $250,000 loan at 4%, have paid roughly $3,000 on the principal and $15,000 in interest, and also fall into the 28% tax bracket, your potential tax savings could be close to $4,200.
In addition to the interest of a home loan, homeowners can often deduct points that are associated with a mortgage as well. When purchasing a home, lenders will charge borrowers a wide-range of fees, which will no doubt include what are known as points. One point is equivalent to 1% of the loan’s principal, and most home loans will have between one and three points. Points deductions can sometimes save home buyers thousands, so this is certainly one of those deductions to keep in mind after purchasing a home for the first-time.
Property taxes are also something new you’re going to have to think about as a new home owner, but city or state property taxes are also fully deductible from your income.
So while its true that home ownership often comes with additional costs throughout the year, it’s important to remember that a portion of those costs can be offset by taking full advantage of all the various tax breaks home owners qualify for each and every year. But remember, tax laws and regulations are always changing, so for the most up-to-date overview of what benefits you can receive, contact Brandon Duncan, the Triangle Area’s preferred first-time home buying specialist!