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

Posted on by Crewits SEO in Tax Leave a comment

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.

Tax Filing 101: The Most Common Tax Filing Mistakes You Need to Avoid

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tax mistakes

Last year, the IRS issued $324 billion in refunds last year. The April 15th deadline is fast approaching. If you haven’t filed your taxes yet, it’s time to get to work.

Before filing your taxes, you need to make sure you avoid certain mistakes. Read on to learn about the most common tax mistakes.

Don’t Forget All Income

Did you do any side jobs this year like freelance writing? If so, the company should have sent you a 1099-MISC form with information on your pay.

When you get a 1099, the IRS knows about this extra money. These forms are also sent to the tax agency, so don’t forget to report any of these earnings. You may even get a 1099 for unearned investment income.

If you do not report these earnings, you may have to pay penalties and interest. All your income is taxable, so you have to report it. Any 1099 form must go on your return somewhere.

Itemize or Not

If you do not meat the standard deduction, you must itemize your deductions. This can result in paying the IRS more. For example, if you donated $5,000 to a charity, but the standard deduction is $12,000, you will end up paying taxes on the $7,000 more in income (which is the difference between the standard deduction and your claimed deduction).

You should make sure you have documentation on your deductions. If you can itemize, it may save you a lot of money. Other things you can itemize include uninsured medical expenses, taxes, and interest paid on your home.

Missing Tax Credits

Tax deductions are helpful, but tax credits actually reduce your tax liability. Deductions come off your income.

The two most popular tax credits are the child tax and earned income credits. You need to make sure you qualify by using the IRS calculations. Try not to fudge these numbers to qualify.

You may have to complete extra forms to show you qualify for these credits. If you are unsure if you qualify for a tax credit, you may want to contact a professional to assist you with your tax service.

Double Check Bank Account Numbers

If you e-file and want your refund to be direct deposited, you will get your money back quicker. Be sure to double check your bank account and routing numbers to be sure it is accurate. If the information is incorrect, you will have some issues getting your refund.

Choose the Right Filing Status

There are five options for your filing status, and each one makes a significant different in your tax bill. These statuses include Married Filing Separately, Married Filed Jointly, Single, Head of the Household, and Qualifying Widow(er) with a Dependent Child.

If you have gone through a divorce, you may need to check with your ex-spouse or tax professional to make sure your new status makes sense for your tax return.

Check Your Math

Math errors are one of the most common return errors. The IRS found about 1.7 million math errors.

If you are doing a paper return, make sure you double check your numbers. Also, make sure you are using the most updated IRS tax tables.

Double check that you entered all your numbers correctly. If you are using software, it won’t give you the right result if you entered the numbers wrong.

Not Filing on Time

The IRS estimates 20 percent of Americans wait until a week before the deadline to file taxes. Waiting until the last minute could spell trouble. If you run into any problems filing, you may not make the deadline.

If you don’t make payments in time, the IRS will charge interest. You could always file for an extension, but make sure you do it correctly.

Double Check Social Security Numbers

Your taxpayer Social Security number is your identification number. The IRS does not put it on the package labels to protect your privacy.

Make sure you get your Social Security number is right because if it’s wrong, your taxes will not be able to be completed. Everything is tied back to your Social Security number even tax credits.

Don’t Use Paper

You are 41 times more likely to have an error if you use paper and not an electronic filing program. Do you really want to put that pressure on yourself? There are several software programs to choose from along with the IRS e-file.

These programs make your life simple by walking you through your return. They ask you simple questions to help you determine any credits or deductions. It will also tell you if you qualify for the standard deduction.

You don’t have to guess with these programs. Plus, they do the math for you which eliminates additional chances for errors.

Signature Required

If you don’t sign your tax return, the IRS will not accept it. Both spouses must sign the joint return whether it’s electronic or paper copy.

Remember to also double check your name. Your name most appear exactly as it does on your Social Security card.

Be sure your John Hancock is on every line needed before mailing or sending your form. You must also date your return.

Use the Right Tax Form

There are three tax forms. These include 1040, 1040A, and 1040EZ.

Choosing the right form for your tax situation is vital. For example, you can’t use the simple EZ version if you want to itemize deductions.

Staying Updated on Taxes

The tax code is complicated. Guess what? Congress changes it every year.

You want to make sure you know the latest updates, so you don’t miss any deductions. You also don’t want to claim a deduction that is no longer available. Using software or a tax professional will help you with this because they are always “in the know.”

Still Worried About Tax Mistakes?

No one wants to make tax mistakes. You should always triple check your tax return, but if you are still worried about mistakes, you may want to turn to the professionals that know the tax code best.

Contact Superior Financial today for expert tax advice. We can prepare your taxes for you to relieve any stress and get your refund as quick as possible.

Top 5 Tax Paper Downloads

Posted on by webmaster in Scholarship, Tax, Top 5 Downloads Leave a comment

There is a bit of movement in this week’s list of the Top 5 Recent Tax Paper Downloads, with a new paper debuting on the list at #1: [246 Downloads] Why Corporate Tax Reform Can Happen, by Edward Kleinbard (USC) [170 Downloads] David Foster Wallace on Tax Policy, How to…

The IRS Scandal, Day 654

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The American Spectator, The Real ‘Dirty Dozen’ at the IRS: For Some Reason, It Fails to Include Itself on its List of Abusers, Scammers, and Cheats: The IRS just released its “dirty dozen” list of tax scams and schemes for the American people to avoid. In addition to normal phishing…

Vanguard Tax Whistleblower’s First Day in Court

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Following up on my previous posts (links below): Philadelphia Inquirer, Vanguard Whistleblower’s First Day in Court: Last Friday Feb. 13, New York Superior Court Judge Joan Madden held a previously-delayed hearing, in Courtroom 351 of Manhattan’s state courthouse way downtown, so she could grill lawyers for both sides on Vanguard…

Uber, Lyft, and the IRS

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San Francisco Chronicle, Here’s Why Uber and Lyft Send Drivers Such Confusing Tax Forms: Uber and Lyft say their drivers are independent contractors, not employees. But when it comes to income-tax reporting, they are treated as neither. Traditional employers send employees, and the Internal Revenue Service, Form W-2, which shows…

The IRS Scandal, Day 653

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The Maddow Blog, GOP’s Gowdy Eyes New Conspiracy Theory Panel: [T]he notion that the Obama presidency has featured “six years of scandal” seems bizarre. David Axelrod boasted this week, accurately, “I’m proud of the fact that basically you have had an administration in this place for six years in which…

Burman Presents Taxes and Inequality in a Changing Economy Today at Florida

Posted on by webmaster in Colloquia, Scholarship, Tax Leave a comment

Leonard Burman (Director, Urban-Brookings Tax Policy Center; Professor of Public Administration and International Affairs, Syracuse University Maxwell School), delivers the Fifth Annual Ellen Bellet Gelberg Tax Policy Lecture at Florida today on Taxes and Inequality in a Changing Economy: (webcast): Rising economic inequality is arguably the economic challenge that will…

Weekly Tax Roundup

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Blog of the Legal Times, Suit Accuses Feds of Unlawfully Seizing Tax Refunds Bloomberg, Gay Couples’ Tax-Season Nightmares Continue Bureau of Economic Analysis, The Effects of Corporate Inversions on the International and National Economic Accounts BuzzFeed, These Professors Want Parents Who Don’t Vaccinate To Pay A Tax Chicago Now, Pets…

Weekly SSRN Tax Roundup

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Gillian Brock (Harvard) & Hamish Russell (Toronto), Abusive Tax Avoidance and Institutional Corruption: The Responsibilities of Tax Professionals William Neil Brooks (York) & Kim Brooks (Dalhousie), The Supreme Court’s 2013 Tax Cases: Side-Stepping the Interesting, Important and Difficult Issues Paul Demere (Illinois), Michael Donohoe (illinois) & Petro Lisowsky (Illinois), The…

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