Are you wondering why your Dad, Grandpa, and everyone older than you have been telling you to buy a house for years?
One of those reasons is because home ownership tax advantages are REAL.
So now it’s that time of year – you’re waiting for your W-2’s and ready to file your
tax return thinking about what to do with that big refund check! Maybe you will be buying a new TV, taking a vacation, or just letting it collect dust in the bank account.
I’m going to show you some additional tax breaks Uncle Sam throws out for home buyers that MOST AMERICANS DON’T KNOW ABOUT so pay close attention to this article.
I’m no CPA, just one smart intelligent and good looking Realtor and wanted to make sure you knew about this.
Homeowners have way more opportunities for federal income tax deductions than renters do. When you own a property you can deduct your annual mortgage interest and property taxes paid annually. That means if you paid $10,000 in interest and $4,000 in property taxes, that you would deduct $14,000 from your what you would normally pay taxes on. For more information on this you can read this article.
Every home owner should know about this, but let’s discuss what most new home buyers don’t know.
Here are some additional home buyer tax advantages most people don’t know about!
Buying a home: The IRS will allow first-time home buyers to withdraw up to $10,000 from their IRAs penalty-free to help with the purchase of their home. Your spouse or even a parent, child, or grandchild can kick in another $10,000 from their IRA accounts, for a total of up to $20,000. You can even borrow half of your 401(k) balance up to $50,000 for the purchase of a home. Unfortunately, the interest you pay on that 401(k) loan, unlike a mortgage loan, isn’t tax-deductible.
Points on home mortgage: If you do decide to buy a home with a mortgage, then in addition to the mortgage interest (which may not be a lot, thanks to the current interest rates), you can probably write off the points (both origination and discount points) on your tax return. One “point” is equal to 1% of the principal loan amount, and Uncle Sam considers these points to be prepaid interest. Lucky you…
Private mortgage insurance: If you happen to get a FHA loan, you will most likely be paying private mortgage insurance (PMI). You may be eligible to receive a deduction for these premiums on your tax return; this tax break was recently extended for the 2015 & 2016 tax years. Keep in mind that this is reduced if your adjusted gross income (AGI) is over $100,000, and if it’s over $109,000 you can’t take the deduction at all. Don’t think you’ll fool the government if you’re married and filing separately, as the deduction begins to be reduced at $50,000 in AGI and disappears at $54,500.
Closing Costs (some): Property taxes are almost always tax-deductible, but most fees in your closing costs that might look like taxes really aren’t. You can’t write off your attorney and appraisal fees, title insurance and credit report costs either. Transfer taxes you paid on your closing can be written off. In the city of Chicago the transfer stamps are $7.50/$1,000 spent. It’s a big one. For more information on Chicago closing costs, CLICK HERE.
Energy-efficiency tax credit: If you already own a home, I have a knowledge nugget for you too – If you made improvements in 2015 to make your home more energy efficient (by installing equipment like storm doors, energy efficient windows, insulation, air-conditioning and heating systems), the IRS wants to give you a tax credit too! Talk to your accountant soon though – this credit is set to expire on Dec. 31, 2016.
By no means is this a full list, and there are plenty other deductions available for new and existing homeowners. Again, I’m not a tax accountant, so be sure to check with yours to see which ones may or may not apply. I AM a pretty damn good Realtor though, and would love to help you put that accountant to work. Call me so I can show you how I can help you find your dream home. Feel free to tell all your friends too!
Please feel free to contact me below if there are any additional questions I can answer for you.