Tax Considerations for First-Time Home Buyers
As a first-time home owner, you're probably well aware that your new address is “a shelter for your family, a gathering place for your friends and a good long-term investment.” At the same time, you may
not know that your investment can also be a major tax benefit.
Basic deductions for home owners. In general, the three main home-related tax deductions you can look forward to are the interest on your mortgage, any points related to your home loan and the property taxes you pay. Note that property insurance premiums and association fees are not tax deductible. Use the long income tax form (1040) and completing Schedule A to itemize your deductions.
What you should know. Just because you used the standard deductions when you file your taxes this year does not mean that you cannot itemize your deductions next year. In fact, you can alternate between standard and itemized deductions on Schedule A, depending on which method is most beneficial to you at that particular time.
Things to keep in mind for maximum tax benefits:
- Check with an accountant to see if your mortgage insurance is deductible, but keep in mind that you cannot deduct the cost of basic home maintenance or repairs, or any improvements you make on your home.
- See if you have taken every exemption that the law allows by checking with a real estate professional or an accountant in your area. You can also visit the National Taxpayer Union’s website (http://www.ntu.org).
- Think about using a property tax consultant to check your tax assessment. This professional will go over the details of how your property was assessed and the fine print you may have overlooked. (Some consultants charge a percentage of what you will save on your taxes, while others charge a flat fee for this service.)
Finally, there is a major tax benefit when it comes time to sell your new home: if you stay in your home for two of the first five years before you sell it, you won’t be taxed on the profit from the sale, up to $250,000 if you file singly or $500,000 if you and your spouse file jointly.