Tax Breaks for Homebuyers and First-Time Homebuyers Main Treasure Valley Life

Owning a home is one of the best tax breaks you can get and is seen as one of the reasons to buy a home instead of renting. Here, we are going to look at some of the most common tax breaks homeowners can get, including separate benefits for first-time homebuyers.

The home buying process is daunting, both for first-time buyers and seasoned buyers alike. You have to take the time to save up enough for a down payment and closing costs, tour homes, submit offers, potentially win a bidding war, and it is all gone with a few signatures. Homes cost a lot of money, and luckily there are plenty of ways to write off being a homeowner on your taxes through credits and deductions.

Note: This is all publicly available information. For tax advice tailored to your situation, talk to a tax professional.

Tax breaks all homebuyers can utilize

Mortgage interest deduction

This is the biggest tax deduction a homeowner can make, and you will hear about it as you move through the loan process as a homebuyer. Homeowners can write off the amount of interest they paid on the loan during the year against their taxable income. Currently, the loan limit is $750,000, and any interest paid on that loan up to $750,000 can be deducted from your taxes.

Property tax deduction

Property taxes can be deducted from your taxable income, as long as the combination of property taxes, state taxes, and local taxes is less than $10,000.

Loan origination fees or mortgage points deduction

Some homebuyers pay points to reduce the interest amount on their mortgage. One point equates to 1% of the loan. These points are also referred to as loan origination fees. Because mortgage points count as interest paid, they qualify as a tax deduction. 

Homebuyers can deduct the full year’s interest in one lump sum in the year they bought the house, which can result in saving a notable amount of money. This can happen as long as the buyers follow these four rules:

  • The points were paid on the loan for your primary residence
  • The points were paid in cash
  • The points were appropriate for your area in amount and practice
  • The points were paid towards the principal on the HUD statement and not used to cover inspections, appraisals, or other closing fees

Residential Energy Credit

The residential energy credit generally allows homeowners to claim 10% of the cost of stalling energy-efficient improvements on their homes on their taxes. This includes doors, windows, insulation, and certain roofs, as well as a certain percentage of certain energy property expenses such as heaters, water heaters, and air conditioning units. There are limits on what items qualify.

This tax credit is non-refundable, which means it can being the taxes owed to $0, but will not give you any money back. These credits are very beneficial, but may not bring the greatest benefit to your taxes, rather the upgrades will be a benefit to your home’s value and help reduce your energy bills.

State and local tax breaks

Tax benefits explained so far have been on the federal level. On the state and local level, there can be other tax breaks you can write off for your state tax filings. Check with your tax professional and local government websites for information. You can find more tax deductions here.

First-time homebuyer tax credit

First-time homebuyers received a tax credit under the Obama administration starting in 2008 until 2010. This credit was designed exclusively for buyers who had not owned a home previously in three years. The credit allowed homebuyers to claim a credit of up to $8,000. This allowed plenty of buyers to enter the market and successfully buy a home despite the effects of the recession. 

At the time of posting, President Biden has proposed a new first-time homebuyer credit and it is currently a bill in Congress. The proposed legislation will give a tax credit of up to $15,000 at the closing table, rather than having to wait for taxes to be filed the following year. 

Idaho first-time homebuyer savings account

On March 24, 2020, the Idaho legislature passed House Bill 589, which established a tax-advantaged first-time homebuyer savings account. The account is for any Idaho resident and/or their spouse to open an account specifically to buy their first home in Idaho. Individuals can save $15,000 per year and joint couples can save $30,000 per year to go towards down payments, closing costs, appraisals, or other costs incurred in closing on a house in Idaho. To be eligible for the program buyers cannot have previously bought a house in Idaho or any other state. This is purely for people buying their first home. 

The following banking institutions are participating in the program:

  • Bank of Commerce
  • CapEd Credit Union
  • First Federal Savings Bank
  • Idaho Central Credit Union
  • Spokane Teachers Credit Union
  • Westmark Credit Union
  • Willamette Valley Savings Bank

If your bank or credit union isn’t on the list, ask them if they offer a First-Time Homebuyer Savings Account.

Posted by AndrewS at 5/19/2021 2:25:00 AM
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