Tax Considerations for First-Time Homebuyers
Buying your first home can be an exhilarating and terrifying experience! There’s the excitement of owning your own piece a property, realizing the American Dream, but then there’s all the responsibilities that come with it—things that no one will tell you until you’re approaching or have surpassed the deadline. That’s usually when anxiety sets in.
Here at Success Tax Relief, a tax relief firm in LaPorte, Texas, we have dedicated ourselves to empowering our clients with as much tax information as possible. We don’t want you to be in the dark when it comes to your tax obligations. As a first-time homeowner, you should also know that not every tax-related case is a burden. Knowing all of the tax responsibilities for homeowners can very well put money in your pocket.
We have developed a short list of helpful tax information that will benefit first-time homeowners:
Standard Homeowners Tax Credit vs. Itemizing
As a new homeowner, you are now eligible to take advantage of the standard homeowners tax credit. The actual amount that you can claim depends on when you bought your new home. However, for general purposes, the tax credit is 10% of the purchase price of your home. This amount can be reduced depending on how you file. The Internal Revenue Service (IRS) states, “full credit is available for homes costing $75,000 or more.” There are more stipulations surrounding this rule, so it is recommended to contact the IRS for more information or consult a seasoned tax expert.
Some homeowners may have purchased a fixer-upper. More homeowners are doing this because they find that they can get more equity in their home by purchasing property with a worn-out structure at a low price, then fixing it up; thus, raising the property value and building instant equity. In such cases like this, it’s wise to keep a receipt of all of your home improvement expenses because they might exceed the standard homeowner’s tax credit.
Mortgage Interest Tax Deduction
The interest that you pay on your mortgage note can be deducted on your annual tax filing. The amount that you can deduct really depends on the date and the amount of the mortgage. In order to claim the full amount of your interest, you must comply with one or more of the three categories listed on the IRS website here.
Property Taxes are Also Tax Deductible
Depending on what state you live in and which county, as a homeowner, you’ll receive a property tax bill. Oftentimes, this amount is escrowed into your mortgage note and dispersed when it’s time to pay, whether it’s quarterly, bi-annually, or yearly. Either way, this amount is also tax deductible.
Cash Back from the Seller
During buying/selling negotiations, the seller might agree to reduce the asking price of a home as a compromise that the buyer will use that reduced amount to put towards home improvements. In this case, that amount is also tax-deductible.