In 2016, there were nearly 5.5 million recorded home transactions.
Whether you’re saving up to buy your first home or you’ve already set aside the down payment, homeownership can lead to some serious tax savings.
Let’s get into what you need to know.
Mortgage Interest Deduction
Typically deemed one of the best tax savings in home ownership, it’s important to understand how mortgage interest deduction works.
Currently, you can deduct interest on up to a $500,000 loan (if you file as a single tax filer) or a $1 million loan (if you file jointly).
At the beginning of your homeownership journey, you’ll be typically paying a majority on the overall interest.
By being able to deduct this, you’ll score some lucrative tax benefits once April rolls around.
Property Tax Deduction
Nobody really likes paying property taxes, but they exist as a necessity for homeowners.
With that said, you can deduct the property tax come tax season. You just need to claim it in the year that you actually make your payments. This is important to keep in mind if you’re paying quarterly.
If you live in a state with high property tax rates (New York, Hawaii, and Maine), this can be very beneficial.
Home Office Deduction
Do you telecommute, freelance or run your own business from home like many millennials are increasingly doing? If so, taking advantage of this deduction can help you save on your taxes.
You’re allowed to write off a percentage of your home expenses (mortgage, internet service, utilities, insurance) in order to conduct your business at home.
To be eligible, you’ll need to prove that you have a designated space designed solely for business use.
When you buy a house, you may have to pay “points” to the lender to qualify for your mortgage. If you pay points, you can deduct them as part of your tax savings.
The lender will not remind you of this so it’s up to you to stay proactive and on top of this deduction each year.
Typically, you receive a 10 percent penalty if you withdraw cash from your IRA before age 59 1/2.
However, if you’re buying or building a first home, you can withdraw up to $10,000 penalty-free. That’s a lifetime limit and you must use the money within 120 days of withdrawal.
If you’re paying private mortgage insurance, you’re already paying another 0.5-1 percent of your home loan’s value.
While this may not be ideal, you can qualify for tax savings if your income is $54,000 or less (filing single) and $109,000 or less (filing jointly).
Final Thoughts on First Home Tax Savings
The decision to buy your first home is both exciting and overwhelming. With that said, it’s a significant and unforgettable milestone – one that you should be proud of!
Interested in getting a fast and easy loan quote? Click here now.
We at 7th Level Mortgage are an experienced team of mortgage professionals based out of New Jersey and serving the east coast from Pennsylvania to Florida including Delaware and Maryland. We have won numerous awards for our excellent professional work and reputation with clients for being extremely diligent, accessible and hands-on throughout the entire mortgage process.