Owning a home gives has many advantages, including the building of equity, and becoming part of a community. One of the best advantages? The tax incentives that come with owning your new home!
The Different Tax Breaks New Homeowners Can Recieve
Deduction of Mortgage Interest
The deductions available for interest paid on a home mortgage offer a significant benefit to homeowners. As a homeowner, you are allowed to deduct all the interest paid for your mortgage loan. However, the following exemptions apply:
- The loan for your new home can be no more than $750,000
- Married couples who file separate tax returns can each deduct $375,000
- Deductions are not allowed for second mortgages
- Deductions are not allowed for home equity lines of credit
Local and State Property Deductions
Property taxes are another place first-time homebuyers can find tax breaks. You are allowed to deduct the property taxes you pay for the year from your taxes. If your home is purchased mid-year, all expenses can be guaranteed from the offer date forward. The total allowable deductions for local and state property deductions is $10,000 for a couple and $5,000 for individuals filing separately.
Renewable Energy Credits
Homeowners that use renewable energy for devices like geothermal heat pumps, solar water heaters, renewable energy fuel cells, and wind energy devices can take advantage of renewable energy tax credits. Homeowners can deduct 30 percent of the cost to use these devices at their home. The tax credit will gradually decline from 30 percent now to 10 percent in 2022. The tax credit is available once the renewable energy project is set up.
IRA Payouts With No Penalties
Many homeowners save money for years to put toward the downpayment and closing costs of their new home. If you have a tax-deferred or tax-free retirement account like an IRA, you can use a portion of the funds in this account to pay for your home. Typically, there is a fee associated with withdrawing funds from these accounts before you are 60 years of age. However, you are allowed to withdraw $10,000 without penalty to use as part of a home purchase. Your spouse is allowed to withdraw the same amount.
Exclusion For Capital Gains
When you decide to sell your home, there is one last potential tax benefit available to you. The IRS will allow capital gains of up to $250,000 for single taxpayers and $500,000 for couples to go untaxed. The following criteria must be met to enjoy this tax break:
- You have not taken advantage of a capital gains exclusion in the last two years.
- The home was used as your primary residence for two of the previous five years.
- The home was owned by you for two of the last five years.
Does your new home need some maintenance work? Call Dean’s Professional Plumbing, Heating & Air today to learn about the many great replacement devices that we have to offer!