Many first-time homebuyers are mostly concerned with getting the best price for a home and the lowest interest rate on their mortgage. However, there’s an array of other factors that are involved in a home purchase. For one, you may be able to receive tax benefits for your new home purchase when it comes time to pay your income taxes. Here are some important first time home buyer information regarding your tax advantages:
Tax advantages that homebuyers may receive:
What is a first time home buyer credit and who can qualify? If you’re a first time homebuyer, it is important to know what tax advantages are out there because certain benefits are only available for your first home purchase. You want to keep an eye out for first time home buyer incentives offered by your local, state, and federal government. For one, you may be able to qualify for what is called a “first time homebuyer credit” when you file your tax returns. For a limited time, homebuyers who are eligible for this incentive can claim an interest-free credit of up to $7,500 by attaching a completed Form 5405 to the Form 1040 of their tax return.
What are itemized deductions? All homeowners have the ability to deduct certain expenses that come along with owning a home. There are a number of costs associated with buying and owning a home that qualify as itemized deductions in Schedule A of your Form 1040. As a homeowner, you will be able to deduct expenses like the interest you paid every month on your mortgage. Other expenses that can be itemized may include mortgage points purchased at the time of closing, real property taxes, as well as Private Mortgage Insurance (PMI) premiums for those who put less than 20% down on their home.
What are home energy tax credits? As a homeowner, you can make as many improvements to your home as you want, and some of those remodels are tax deductible. Improvements made to reduce the amount of energy consumed within your home can be deducted from your federal taxes. If you are interested in making energy saving updates to your home, you want to save all of your receipts because you can receive credit for 30 percent of all the costs of qualifying improvements and products. By using a Form 5695 to claim the Residential Energy Property credit and the Residential Energy-Efficient Property credit, you can receive interest-free credit for home improvements like adding insulation, installing energy efficient exterior windows, and more.
Other tax considerations for first-time homebuyers
Keep in mind that you will not receive your tax benefits on the day of your home purchase. If you are buying a home in 2014, you will not be able to take advantage of your tax benefits until you file your tax return in 2015. With that said, the potential savings that you can gain will accumulate over the year before you file.