Tax Breaks For Your First Home
Buying a home for the first time is a milestone in the lives of many people. It is an important step one takes in adulthood. But along with the pride of being a homeowner, there are several tax implications and breaks for owning a home.
If you’re like many first-time homeowners, you have a mortgage. With new mortgages, most of the payments go to interest. The good news in that is that interest is tax-deductible as long as your mortgage is under $1 million dollars. The bad news is that your taxes are no longer simple. You’re going to have to begin itemizing your taxes.
Even your second property’s interest is tax deductible. It doesn’t even have to be a house. If you have a boat or an RV that has sleeping, cooking, and bathroom facilities, it’s tax-deductible as well. However, you have to spend at least 14 vacation days or at least 10% of your time at the residence. This means you cannot rent it out full time. Sorry, landlords.
Another big tax break available to homeowners is found in their property taxes. Property taxes are another big part of the mortgage payment. The amount is usually placed into an escrow account and paid yearly. These taxes are an annual deduction for as long as you own the home.
Additionally, if you decide to improve your home and take out a loan to do so, the interest on home-improvement loans up to $100,000 is tax-deductible. Similarly, the interest on a home-equity line of credit is also tax-deductible. However, take care. If the loan is worth more than the value of the property, it is no longer tax-deductible.
If your dream is to own a “green” home, you’re in luck. Not only are you helping the environment, you’re helping yourself to some tax breaks. Installing storm doors, energy-efficient windows, as well as insulation, air-conditioning, and heating systems can make a big different. Even solar panels can result in a tax credit of up to $500, or in the case of solar panels, up to 30% of the cost of materials and installation.
If you’re a first-time home buyer and have an IRA, the IRS gives you a break there, too. You can withdraw up to $10,000 to help with the purchase of a home from your IRA account without penalty. If your spouse or parent has an IRA as well, they can kick in an additional $10,000 for up to $20,000 total. You can also borrow up to half of your 401k balance up to $50,000 to help in purchasing a home, but the interest paid on that loan isn’t tax-deductible.
With all of these incentives, there’s no wonder that there are so many first-time buyers in the market right now. When it comes to purchasing a home, many people take two primary things into consideration: price and location. These two things normally go hand-in-hand.
According to WalletHub, a personal finance website who ranked the most favorable (and unfavorable) cities for first-time home buyers, south Florida’s real estate climate is not favorable to the first time buyer.
Wherever you decide to purchase your first home, there are certainly incentives. The least of which is the pride of being a homeowner and the ability to paint, decorate, and landscape. You’ll find yourself eligible for certain tax breaks that will help to save you money that you can put towards paying off that loan early. Or you can put it towards buying that home theater you’ve always wanted. Or a new car. The choice is yours.