With the housing market on the rise in many places across the country, lots of people are becoming first time home buyers. Lucky for these new home owners, the United States government has a laundry list of tax breaks they offer to encourage more Americans to purchase homes. These tax breaks can be applied to any type of home from a single family residence to condominium and even mobile homes. Here are six tax breaks that only homeowners get to claim.
First Time Home Buyers
The IRS will allow first time home buyers to pull up to $10,000 from their traditional or Roth IRA accounts penalty free to help them with the purchase of their home. You can also borrow half of your 401(k) balance up to $50,000. But the interest paid on the 401(k) is not tax deductible, unlike your mortgage payment.
Since the majority of your mortgage payment goes toward interest, your biggest tax break comes in the form of the house payment you make each month. And unless your loan is more than $1 million, all that interest is deductible. Interest tax breaks don’t stop at your first mortgage either. If you are the proud owner of multiple properties, mortgage interest on a second home is also fully deductible.
If you purchased a home in 2015, in addition to the mortgage interest, you can write off the points on your tax return. That’s because the IRS considers points to be pre-paid interest. One point is equal to 1% of the principal loan amount. The tricky part is whether or not you are eligible to deduct the points all at once or whether you have to spread the costs over the lifetime of the loan.
Property taxes are almost always tax deductible. To deduct property taxes, you will need to itemize. You cannot write off your attorney and appraisal fees, title insurance or credit report costs. However, transfer taxes can be written off. A property tax is deductible in the year that you paid it, rather than the year that the payment is for.
If you made any efforts to make your home more energy efficient, the IRS wants to give you a tax credit. Anything from adding storm doors or new insulation to installing energy efficient window or air-conditioning and heating systems will qualify you for this tax break. The credit amount is a total of 30% of the cost of qualifying improvements, up to $1,500.
Home Expenses and Improvement
If you make or plan to make any home improvements, you can write of the cost of the home improvement, such as materials and labor. Then when you sell your home you can add the cost of those improvements into the asking price, which should diminish the capital gain.