Everyone has their own reasons for wanting to buy their first home. Maybe it’s because you have pets and they’ll finally have their own place to play. Perhaps you’re thinking of starting a family or you need a home office. Whatever your reasons, buying your first home is a big deal; one that requires lots of information and smart choices. If you’re in any doubt as to whether or not you qualify as a first time home-buyer, visit HUD, (US Department of Housing and Urban Development), for requirements as well as current news.
……the FHA is reducing the amount of deferred student debt, from 2 percent to 1 percent, that counts against a borrower’s debt-to-income (DTI) ratio. That means someone with $10,000 in deferred student loan debt would have a $100-per-month repayment obligation in calculating DTI, rather than $200.~Robert Freedman REALTOR®Mag (Repaying Student Debt; Know Your Options)
Investment – instead of paying rent, you’re building equity. You can live in your own investment!
Tax breaks from Uncle Sam– not only will you get the usual tax deductions for owning a home, you may also qualify for a tax credit for first time home-buyers. Note: tax deductions are not the same as tax credits. A tax credit is an amount of money a tax-payer can subtract from the amount of tax they owe the government. A tax deduction is a deduction made from gross income resulting from various types of expenses; tax deductions are taken away from taxable income (AGI).
- New Home Owners – find out if there are currently any tax credits for first time home-buyers by visiting irs.gov.
- Energy-Efficiency Tax Credits – claim up to 30% of the cost of qualifying purchases. To find out more about which items qualify, visit www.energystar.gov.
One of the biggest deductions for home owners will be the interest you pay on your home; especially advantageous during the first few years of a fixed rate mortgage.
Other Tax-Deductible Expenses
- Interest on home equity debt – even if you don’t use the money from a home equity loan to improve, buy or build your home, there are other circumstances which enable you to deduct the interest paid. Examples include using the money to pay medical bills or towards your child’s education. The deduction is limited to a maximum loan amount or the total fair market value of the home less other mortgages.
- Interest on a home improvement loan – the interest on certain home improvement loans such as those used to increase your home’s value, prolong it’s life or use adaptation, (i.e. putting in a new bathroom), is deductible with no limit. However, you can’t deduct interest paid on loans used to make repairs to your house.
- Home office expenses – if you use a part of your home exclusively and regularly for a home-based business, you can generally deduct a portion of relevant expenses.
- Moving expenses – if you’re required to move because of a new job that’s more than 50 miles from your current home, you may be able to deduct your moving expenses.
- Points – when you buy your mortgage, points are additional and are usually optional. In return, your interest rate is reduced. Points are tax deductible in the year that you pay them.
- Prepayment penalties – if you have a mortgage with prepayment penalties, the penalty you pay will be tax-deductible.
- Property taxes – if you itemize on your federal tax return, you can deduct the allotted amount for your state/locality.
Capital Gains Tax Relief
If you’re just now considering the purchase of your first home, you’re probably not thinking about selling it. However, it’s important to know about the Taxpayer Relief Act of 1997. When or if you sell your home, you don’t have to pay capital gains tax on the first $250,000 you make; $500,000 if you’re married and filing jointly. To qualify, you must have lived in your home two out of the previous five years prior to selling.
If you’re still wondering whether or not you should buy or continue to rent, run the numbers with this calculator, or, better yet, contact us, and we will help you take advantage of all of your first time home-buyer savings, including information about a down-payment.
Helping Hoosiers Home
- energystar.com – federal tax credit for qualifying purchases
- irs.gov – additional help & resources
- irs.gov – information about itemizing your deductions
- irs.gov – tax information for homeowners (IRS Publication 530)
- nolo.com – Homeowner Tax Breaks
- REALTOR®Mag, “Help Is On the Way For Young Buyers”, https://realtormag.realtor.org: https://realtormag.realtor.org/news-and-commentary/feature/article/2016/05/help-way-for-younger-buyers. May 2016.