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Benefits of Buying: First-Time Home Buyer Tax Breaks You Need to Know

first-time home buyer tax

The median price for first-time home buyers is $182,500. Even for those with perfect credit, the challenge of keeping up with everything is tough. Luckily there is plenty of help out there in the form of first-time home buyer tax incentives.

The only obstacle here for taking advantage of tens of thousands in tax credits is knowing who qualifies. The tax codes are always changing and it takes time to know exactly how these tax breaks for first-time home buyers works.

This short guide should shed some light on what’s out there.

Home Mortgage Interest Deduction

We’ll start off with one of the biggest first-time home buyer tax break. With this break, you’ll get to write off the interest for loans of at least $750,000, half that amount for married, but filing separately. This can mean the difference between eating tuna sandwiches during the first few months and sushi.

This is because the first payments you’ll be making on a new home are some of the highest interest payments you’ll find on a loan. You can claim the home mortgage interest deduction on your Schedule A itemizations. If your home ownership expenses add up beyond the standard deduction, you’re saving big.

Ask your lender about this tax credit before the end of the tax year, so you can get the total amount of interest you qualify for.

Home Office Deduction

This next tax credit category isn’t unique to first-time home buyers, but it is a huge write off if you work from home. It doesn’t even have to be your main source of income, a side-hustle that requires space to the side is all you need. You can make a deduction based on the square footage that you’re dedicating as office space.

Some new homeowners reserve this space for their garage, considering how roomy it is (hint, hint, nod). Don’t get things twisted, though, if you’re genuinely spending a large portion of your time sitting at home to generate income, this deduction is 100% fair.

Keep track of all your office materials, electronics, and other business investments while moving in, too. Have a professional tax servicer help you get the most out of your deductions.

Mortgage Points Deduction

Aside from recouping the interest paid during your first year of home ownership, you can also recoup the cost to secure the loan itself. Mortgage “points” are a type of interest credit that is used to secure a lower interest rate. It’s essentially “money down” over the life of the loan.

This is an often overlooked tax credit because most first-time homeowners don’t see this as a qualifying deduction. It is, as it works just like any other payment towards the interest. Deduct the cost of acquiring said points and still get the benefits of a lower interest rate.

Have your cake and eat the deduction, too.

Home Energy Tax Credits

Another tax credit that is open to everyone, but can really help first-time home buyers for a number of reasons. Energy tax credits can reduce the cost of investment into renewable energy sources by 30%. It is recommended for new homeowners to invest in solar, wind, or geothermal if they have the opportunity.

Your upfront costs are going to hurt, but if you plan on living in your new home for the next 10-20 years, it’s a huge saving. Solar panels basically pay for themselves within the first 10 years, or sooner in some areas. Ask the contractor who will be installing about other credits and discounts available.

You’ll use for 5965 to file for the home energy tax credits.

Tax-free IRA Withdrawals

One huge advantage that IRA account-holders have over the average home buyer is access to their savings. In fact, first time home buyers can do this without the usual penalty for immediate withdrawals. This savings is automatic, as long as you qualify for first-time home buyer status.

This umbrella includes all home buyers who haven’t purchased a home in the last two years. A very generous offering when compared to other tax benefit categories.

Property Tax Deduction

Another standout tax break for first time home buyers, proper taxes are included in the itemized deductions section. How it works is fairly straight-forward, but can be misconstrued easily. This deduction qualifies all real estate taxes for your primary residence.

You will file these deductions based on the current year you paid property taxes. If you happen to have paid them in the middle of the tax year you’re filing, then you would only be able to claim taxes paid up to that point. The total deduction cannot exceed $10,000, half that for married and filing separately.

This total includes federal, state, and local property taxes.

State-level Tax Incentives

Depending on where you live, you may be eligible for more tax breaks reserved for first time home buyers. These tax incentives vary by state, with places like Oklahoma being on the most generous end of the spectrum. Most of these state-level incentives center around getting new buyers into homes.

These incentives can help you make that final push to get the home you’ve always wanted. Other incentives can also help with various renovation projects. State-level incentives on renewable energy is a big deal in places like Arizona and Nevada.

First-Time Home Buyer Tax Help

With the door open, you now have a good idea as to what kind of help is out there. First-time home buyer tax incentives are there to help make your first years of home ownership a little bit stressful. We also advise new home buyers to be patient and don’t rush into any sale they don’t feel financially secure with.

We can help you get the most out of your first home purchase. Contact us for professional financial advice and tax services. We are here to help you get the tax breaks that you deserve and maximize your investment.

Accept nothing less than Superior Financial advice.

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