Monetary advantages of being a first-time homebuyer
Yes, there is an ungodly amount of paperwork associated with buying a home. No doubt buyers find the process excruciatingly intrusive (you are required to provide a multitude of credit and personal references – for good reason) and taxing. But, in the long run, owning a home is still the best financial decision for those who can afford to do it, especially first-time buyers. No other common investment allows for such a large expense write-off.
Keep up-to-date information in separate files in a determined effort to minimize wading through volumes of paperwork when it comes to tax time. The following contains a short list of potential tax benefits for new homeowners.
1. Mortgage interest is deductible
The home mortgage interest deduction is undoubtedly the best-known tax benefit for homeowners. The interest paid on your loan is deductible on your income tax form. There are a few exceptions including: your mortgage cannot be in excess of $1 million, your mortgage must be secured by your home, and your mortgage must be on a primary or second home. Record keeping is relatively straightforward; your lender is required to issue a form 1098 summarizing each year’s interest payment amount.
2. Points and PMI should be deductible
Points are simply prepaid interest that you pay upfront at the loan’s closing to reduce the interest rate on your mortgage. Points are deductible in the year you pay them if you meet certain criteria. The list to qualify for the deduction is long, but well worth investigation and compliance. Check with your lender in advance to see the current list of requirements. Additionally, PMI (private mortgage insurance) is required as a condition of a first-time homebuyer’s mortgage, when said buyers cannot afford to make a minimum 20% down payment. Generally PMI is not deductible. However, qualifying homeowners who itemize may claim a tax deduction for the cost of PMI in 2015 for both their primary home and/or any vacation homes. Here again, check with your lender or accountant for local requirements and conditions.
3. Local real estate taxes are deductible
Real estate taxes are imposed by county governments on the value of your property. Most lenders will calculate the cost of your real estate taxes and impound them into your mortgage payment account if you so choose and send direct payment to the local government entity (most borrowers prefer this method as a full-proof way of paying your property taxes on time). Again, check with the lender for any stipulations, necessary requirements and ultimate advice or professional referral detailing payment deductibility.