Tax Advice for first time home buyers

Tax Advice for First Time Home Buyers

Posted by Ian Klein on Mon, Aug 05, 2013 @ 12:47 PM

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For many first time home buyers, the experience of owning your own home is an exhilarating one. Although things can seem a tad overwhelming during tax time, this is a great opportunity to learn more about the various tax write-offs that may ease the financial burden of owning a home. The most significant mortgage tax deductions are available to individuals who had a mortgage loan during the previous year.

Mortgage Interest Tax Deduction

The most significant tax deduction for most homeowners with a mortgage loan is the mortgage interest tax deduction. In order to claim this deduction, homeowners must itemize their deductions in order to be able to deduct the full amount of interest paid on first and second mortgage loans during the previous year.
Remember, itemized deductions may be limited if your adjusted gross income is above a certain threshold. Understand that the amount of mortgage loan interest you pay annually typically decreases over time, so plan ahead for the following year by expecting a slightly smaller deduction the following year.
In addition, the mortgage interest deduction applies to first and second home loans. A second home may be real estate, or it could be an RV, a houseboat or other residence type.

Purchase Mortgage Loan Points

Applicants for a new home mortgage loan may be able to deduct the loan points paid to the lender, mortgage company, or both. The points should be easily identifiable on the settlement statement. Remember that there are several rules surrounding this type of deduction. For example, mortgage loan points may only be deducted within the first year after the property is purchased.
If you purchased the home last year and forgot to make the deduction, consider filing an amended tax return. Carefully review rules and regulations regarding this deduction to double check that you meet all criteria.

Refinancing Loan Points

If you refinanced your mortgage loan during the past year, you may meet eligibility requirements for a tax deduction for refinancing loan points. Remember that a loan points deduction for a refinance is different than the deduction for purchase loans.
When you refinance your mortgage and pay loan points on the new loan, these loan points will be amortized over the life of the loan. If you sell your home before the note is paid in full, you are allowed to deduct the remaining points during the tax year when the property was sold.

Qualified Home Improvements

Did you install energy efficient windows or a green-friendly bathroom water appliance during the past year? Many homeowners are refinancing their home and using cash equity to fund home improvements. Regardless of whether you use your home loan to pay for improvements or just pay for the improvements out-of-pocket, remember that certain home improvements may qualify for a tax deduction.
Deductible improvements usually relate to energy-saving improvements, such as adding more installation or installing an energy-saving HVAC system. Also, you may qualify for certain tax rebates or incentives.

Property Taxes

It’s impossible to talk about real estate-related tax deductions without mentioning the property tax deduction. Property taxes are taxes paid to your school district, county or other taxing authorities. Homeowners with mortgage loans may find that their mortgage company’s escrow department handles the payment of property taxes on their behalf.
Find out how much you paid in property taxes last year by contacting your escrow company or tax authority. In general, the full amount of property taxes can be deducted, up to the adjusted gross income limit placed on all itemized deductions. In certain states with state income tax, the property tax rate may be quite low. However, in states with no state income tax, this deduction may be of considerable benefit to you.
Source: Lender411.com

Tags: refinance, refinancing, buying a home, mortgage, credit report, investment property, reverse mortgage, renovation loan, rehabilitation loan, VA Loan, Mortgage, Loan, Reverse Mortgage, debt, debt consolidation, selling a home, rental property, cash flow

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