Buying a home is exciting, and it comes with triumphs and challenges. Among the good things you can get when you make your first house purchase are tax breaks for first time home buyers. These breaks can be significant, depending on what you specifically qualify for and the state you live in. Some states have programs for first time buyers that extend beyond the federal programs that are offered. It’s worth exploring the choices you have for your location, to make sure you get all the breaks and credits for which you are entitled. The programs can change over time, as well, so you want to see what’s available at the exact time you buy a house. Then you won’t miss any breaks, or be expecting one that you won’t be able to claim.
How much can you save?
The amount you can save from a tax break as a first time home buyer can really vary a lot. It’s important to realize that there are two types of breaks. One is a tax credit, and the other is a tax deduction. The credit is a better choice, because it reduces your taxes on a dollar for dollar scale. In other words, if you received a tax credit for $500, you would owe $500 fewer dollars in tax, or get that much more on your refund. A tax deduction is different. With it, you would receive a percentage deduction based on your tax bracket. Someone in the 25% tax bracket who receives a $100 tax deduction would see their taxes drop by only $25. While any reduction in taxes is nice, many deductions don’t add up to a lot of money.
Did you miss any deductions?
Whether you miss any deductions, credits, or other breaks is another important consideration. A lot of people bought in 2010, when the federal home buyer tax credit was still available. Buyers scrambled to get their contracts closed before the deadline, so they could take advantage of the savings. Since that credit is no longer available, you won’t have the option to take it when you file your tax return. You don’t want to miss anything you are eligible for, though, and that can include options from HUD, along with state-sponsored programs and interest deductions. Being able to deduct mortgage interest, loan origination fees, points, property taxes, and changes you’ve made to help your home be more energy efficient can all greatly affect how much you pay in taxes.
Does the kind of home you buy matter?
As you decide which home to buy, remember that from a tiny house to a big mansion, you can take deductions. The type of home you are buying won’t make a difference from a tax perspective, other than the fact that you’ll pay more interest (and therefore have a bigger deduction for mortgage interest) when you purchase a more expensive house with a larger mortgage. You don’t want to buy a bigger, costlier home just to try to get a tax deduction, though. It’s really not necessary, and the breaks you get won’t be enough to offset the extra cost of the mortgage. Choosing the right home is important, but so are the tax breaks you’ll get by being a homeowner. Balancing the home and the tax breaks is the way to go in order to see the most success.
What improvements have you done?
There are a lot of choices to make when you purchase a home. Homeowners who know the laws and regulations can get some very nice tax breaks for improvements they make. For example, solar panels, energy efficient water heaters and windows, and more can mean that you get a break based on how much you paid to have those things installed in your home. How much you get depends on the specifics of your home and the kind and cost of the upgrades. If you’re unsure how much you’ll be getting back, the IRS can help you determine your level of deduction. Many online tax filing programs can also help you, so you can see the level of tax break you’ll get when you make energy efficiency improvements to your home.
Do you have remodeling plans for the future?
If you’re going to remodel your house in the future, keep that in mind and make sure you tax advantage of any credits you can get. By doing your research with the IRS, you can see what options give you credit and what options don’t. That could affect what you put into your home, and how much you spend on upgrades that are energy efficient. If you plan on replacing that water heater anyway, why not choose an option that will provide you with a tax credit? The same is true with windows and other options, as there’s no reason to miss out on a great tax break when you’re going to be making upgrades, anyway.
What tax breaks do you want to plan for?
Planning for tax breaks can be a big part of remodeling. If you see that a break will be ending at a particular time, you may need to make some changes to your upgrading or remodeling plans to accommodate that break. You don’t want to be scrambling the way everyone did in 2010, trying to squeeze in before the deadline. It’s much easier to plan ahead, so you can get the assistance you need and help your finances by saving big money on your taxes. It’s a great feeling that can really give you even more peace of mind in your new home.
2 Point Highlight
Choosing the right home is important, but so are the tax breaks you’ll get by being a homeowner.
Homeowners who know the laws and regulations can get some very nice tax breaks for improvements they make.
