Are you considering purchasing a first home? If you are, you may be wondering if buying a home will help or hurt your tax liability next year. The good news is that most homeowners can take advantage of several tax deductions when they buy or refinance a house. First-time homebuyers in particular may be eligible for substantial tax breaks. Here's a primer on how buying a first house will affect your taxes.
Claiming the Mortgage Interest Deduction
When you first purchase a home, the majority of your monthly mortgage payment will consist of interest. The amount of interest you pay is the highest at the beginning of the loan, so first-time homebuyers may be able to deduct their mortgage interest and get a bigger tax refund.
To claim a mortgage interest deduction, you'll have to itemize your deductions instead of taking the standard deduction. If the total amount of mortgage interest you've paid is more than your standard deduction, you'll likely benefit from itemizing your deductions on Schedule A. Your lender will send you a Form 1098 at the end of the year with the amount of mortgage interest you paid during the year.
Writing off Property Taxes
Property taxes may also offer a tax break for first-time homebuyers. If your mortgage payment includes your property taxes, be sure to keep up with the amount you pay during the year. You can also write this off as an itemized deduction on Schedule A. As a note, if you are eligible for any kind of property tax program such as the Homestead program, your amount of property tax will go down. This means that your available deduction for property tax payments will also decrease.
Tips for Using the Home Office Deduction
If you work out of your new home on a regular basis, you may qualify to use the home office tax deduction. Under this provision, you can write off a portion of several home maintenance costs, as long as they are used for your work space as well. Eligible deductions include utility costs, home repairs, and internet expenses. The key is using the same space regularly and exclusively for your business. If you qualify for the home office deduction, you can write off your expenses using Form 8829.
Buying a first home can offer substantial tax benefits for individuals, especially if they are careful about documenting their purchase and claiming their deductions. If you can write off your mortgage interest, property taxes, and home office expenses, you'll find that buying a first house has a positive effect on your annual tax return.
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