- The Tax Impact of an IRA Withdrawal for a First-Time Home Buyer
- The U.S. 1040 Deductions for Home Buying Costs
- Does It Make a Difference Who Is the Buyer or Co-Buyer for Financing?
- Rules For Withdrawing From Your Retirement Fund for a First-Time Home Purchase
- Definition of a First Home With the IRA
- What Deductions Can You Claim When Buying a Home?
Although the first-time home buyer credit -- the only tax break that applied specifically to new homeowners -- phased out and was last available to homes purchased in 2011, first-time home buyers should still familiarize themselves with the deductions that come with home ownership. Although claiming and itemizing your deductions requires a little more work when you file, as a first-time home buyer you'll often often find it pays to itemize your deductions, because you receive significant tax breaks for which you didn’t qualify as a renter.
If you were dismayed to discover how much interest would accrue over the life of your loan, you can take a bit of comfort in knowing that you can use interest charged on your home loan as a tax deduction. Because the Internal Revenue Service allows taxpayers to deduct interest charges on the first $1 million in value of their loan, most first-time homebuyers can deduct all the interest from their loan. Each year, lenders report interest paid on your loan on a Form 1098. You can claim this amount as a dollar-for-dollar deduction on Schedule A when you itemize.
As a homeowner you can also claim the amount of property taxes you pay each year as a deduction. To qualify, the tax must be based on the home’s value, and be equally assessed against all properties in the area. Additional property tax assessments made for improvements to your property, such as those adding sidewalks or assessments for median care, can’t be claimed as a deduction. Those assessments increase your property’s value, however, and you can add their cost to the home’s basis – or purchase value – when you determine capital gains when you sell the home.
If you purchased points from your lender in order to reduce your interest rate, the amount you paid for the points can be claimed in the year you made the purchase. This purchase is often listed on your Form 1098, but may also be referred to as a loan discount fee, or loan origination fees instead of being labeled "points." The year you buy the points – usually the year you bought your home – you’ll be able to claim them as a deduction on your Schedule A.
While new homeowners find a bonanza of deductions related to their purchase, it's important not to get too aggressive in writing off expenses that relate to your home. You can’t claim settlement costs or administrative taxes such as registration fees necessary to close on your home. Although the cost of private mortgage insurance was once a deduction, it expired at the end of 2011, so it’s no longer deductible. Other expenses of homeownership, such as homeowner’s insurance, HOA fees, utilities and routine maintenance can’t be claimed. The cost of home improvements isn’t a deduction, but it can be added to your home’s basis to reduce capital gains taxes when you sell it.
- SchlÃ¼sselÃ¼bergabe image by tina7si from Fotolia.com