5 Tax Tips for First-Time Homeowners
As tax season arrives, now is the time to take advantage of your recent purchase. Be sure to check out the first-time homeowner tax tips listed below.
Tax credits, deductions and more tips for first time homebuyers
1. Itemize Your Home Mortgage InterestIn most cases, it’s best to itemize to find the most tax exemptions for homeowners. One of the itemizations on a 1040 tax return is the interest paid on your home mortgage. Even those who get a great rate on their home purchase will most likely exceed the standard deduction between their interest and other itemized deductions.
Your mortgage lender will send you a form, Form 1098, leting you know exactly how much interest you have paid for the tax year. This form will help you fill out your itemization (the amount shown as interest paid on Form 1098 is the amount you deduct on your tax return).
2. Look Into Possible Energy Tax CreditsWhen you purchase a new home, you will often complete home improvement projects either shortly after your initial purchase or over the span of your home ownership.
The government will offer homeowners tax credits when they make certain improvements that reduce the energy use in the home. These are referred to as energy tax credits and can cover such qualifying improvements as solar panels; energy-efficient skylights, doors, and windows; a new roof and insulation systems; heat pumps, furnaces and water heaters; and even some qualifying air conditioning systems. Visit Energystar.gov to explore what improvements you can make to qualify.
If you have a mortgage, your lender will usually set things up so that part of your monthly payments will go into an escrow account to pay your homeowner’s insurance and property taxes. These are eligible to deduct under homeowners property tax exemption.
3. Your Property or Real Estate Taxes Are Deductible
Check Form 1098 from your lender to find your deductible amounts.
Your lender may require points to be paid during the loan process. These points are a percentage of the loan amount serving as prepaid interest to secure your loan. If the collateral that is put up against the loan is your home (which is most often the case), the points are deductible on your return.
4. Any Mortgage Points You Paid Might Be Deductible
The amount that you will be allowed to deduct for the year will most likely be listed on your 1098. If not, it will be a line item on your settlement statement as origination fees or points.
If your new home serves as a base for your business or has a space that qualifies as a home office, you may be able to write off some of your home expenses such as some of the utility costs, repairs, insurance, and even the space you use to operate your business. To make sure that you are making appropriate deductions under a home business it may be best to consult with a tax professional to see what qualifies.
5. See if Your Home Office Qualifies You for Deductions
Take advantage of all the perks homeownership has to offer by following the five tax tips for new owners listed above to maximize your deductions and get the most out of your return.