Buying your first home is a real investment in your future. You’re able to build equity in the house and escape the rental market once and for all. But there’s more to it than just building equity. You’re also entitled to several first time home owner tax deductions that can dramatically lower your total tax liability. You’ll need to make sure you understand how these deductions work so you can take advantage of them from the very beginning.
Deduct Your Mortgage Interest
When you take out your first time home owner’s loan, you’re going to have to pay a certain amount in interest each year. If your loan has a fixed interest rate, the rate won’t change over the life of your loan. If you have a variable rate mortgage, your interest rate will change based on the current market. Regardless of the type of mortgage you have, you’re allowed to deduct up to $750,000 in mortgage interest payments from your total taxable income each year. The lower your taxable income is, the less you’ll owe the IRS at the end of the year.
PMI Counts as Interest
If you’re able to pay a full 20 percent of the home’s sale price as a down payment, you won’t have to worry about taking out a private mortgage insurance (PMI) policy on the loan. However, if you end up paying less, you’ll be locked into paying for the insurance until you build at least 20 percent equity in your home. This happens as you make regular payments and pay down the loan’s principal amount. Luckily, you’re able to apply a portion of your mortgage insurance toward your mortgage interest deduction, increasing the amount you can deduct from your taxable income.
Local Tax Credits
Many states and localities have additional tax credits designed to help first time home owners save money year after year. Do your research and find out if there are any that you and your family qualify for. Speak with a local accountant and let them assess your finances and your mortgage situation. They’ll be able to identify deductions you may not even know exist.
Get the Right Mortgage Now
The biggest challenge for most first time home owners is finding a mortgage that they can afford. Apply online today or contact our team to discuss your options. We’ll help you find the best mortgage at the best rates possible so you can get into a home you’ll love.