If you’re thinking of buying a home, get ready for some sweet savings with home tax breaks. If you’ve rented in the past, your money went to your landlord’s pockets. Now that you’ve purchased a home, get ready to put that money back into your own pocket!
Even though the tax landscape changes yearly, the government still provides home tax breaks to new and existing homeowners. If you bought a new home this year, check out the tax benefits you can cash in on at tax time.
Home Mortgage Interest Deduction
The biggest home tax break for you continues to be the mortgage interest deduction. The rules changed for the year 2018, but the tax break continues to provide a huge tax break in the first years of your home mortgage. If your mortgage went into effect prior to December 15, 2017, you can deduct interest up to $1 million. After that, the cap is $750,000.
Lenders amortize mortgage payments with the first payments weighted heavily with interest. If your annual income is $150,00 to $230,000, this places you in the 28% tax bracket. If you buy a $300,000 home with a 30-year loan and a 4% interest rate, you’ll pay $12,000 in interest in your first year alone. Combined with other federal deductions, the write-off of interest paid can save you at least $3,000 the first year of home ownership.
If you received a lower interest rate from your lender because you paid points, you can write them off your annual taxes. Mortgage points are prepaid interest and they can provide a great home tax break. One point is equal to 1% of your loan value, so you can see how that can benefit your finances.
Points work as a tax deduction, too. If your mortgage is for your personal, primary home, the IRS allows you to deduct the full amount of points that you paid in the tax year that you paid them. You can also deduct points paid on a refinanced mortgage, but you must deduct those points over the life of the loan. Home equity loans qualify, too! If you use the proceeds for upkeep on your primary residence, you can deduct them the year you paid them, but if you use the cash for something else, like a car or paying off another loan, you deduct them over the life of the loan.
Private Mortgage Insurance
If you are unable to put at least 20% down on your home, you’re probably going to pay for private mortgage insurance, or PMI. PMI costs from .03% to 1.15% of your mortgage loan and its purpose is to protect the bank. Simply put, loans with zero percent down are more likely to default than those with a down payment. PMI helps the bank offset those losses.
PMI is not cheap. If you take out a $200,000 mortgage and pay 1% in PMI, that’s $2,000. But, the IRS lets you write off most of that premium if your adjusted gross income is less than $109,000. Your loan must be from 2007 or later and it has to be for your primary residence.
The Home Tax Breaks Don’t Stop at Your First Year!
You have immediate perks the first year when it comes to tax breaks, but they don’t stop at those listed above. In addition, and for every year afterward, you can write off your property taxes, home office deductions, energy efficiency upgrades, and home improvements.
With all the home tax breaks available, don’t delay! Start looking for your dream home today!