Benefits of Being a First Time Homebuyer
Buying your first home is generally considered a fairly stressful process. However, not only do you get the satisfaction of owning your own home; you enjoy a few financial perks, as well.
1. Deduct Mortgage Interest – Thinking about all the interest you are paying every month on a new home is cringe-inducing, but you may feel a little better knowing you can take advantage of the mortgage interest deduction when you file your taxes. You will get a form 1098 for the year from your lender, and you can claim all interest providing your mortgage is secure and for a primary or secondary residence. Also, the mortgage can’t exceed $1 million.
2. Deduct the Cost of Private Mortgage Insurance – If you put less than 20 percent down on your home, the lender will generally require private mortgage insurance, more commonly known as PMI. In the past, this expense has not been tax deductible, but as of 2015, qualifying homeowners are eligible to claim this for permanent residences and vacation homes.
3. Real Estate Taxes Can Be Deducted – The value of your property determines the amount of real estate tax you need to pay. You can deduct money paid out of an escrow account to cover these fees, but you can’t deduct the money paid into escrow. You will find these totals on your settlement sheet.
4. Easier to Reach Standard Deduction Amount – Itemized deductions, such as health insurance, donations to charities, and unreimbursed job expenses matter more when you exceed the standard deduction of $6,300 for individual or $12,600 for married couples. In most cases, it is rare to hit these numbers unless you are a homeowner.
5. Tax Relief for Capital Gains – At some point it is highly likely that you are going to sell your house, which makes resale value a topic that always needs to be in the back of your mind. This doesn’t only apply to upgrades and renovations though. When you sell, you will be able to get away with not paying tax on some of the gains you see from the sale. To be eligible, you need to have lived in the property for at least two of the past five years.
6. Special Loan Programs – First time homebuyers generally have access to a number of incentives, such as subsidized interest, low down payment, and a cap on fees. So, if you pay a small down payment, you will need to obtain private mortgage insurance, but since you can deduct the cost of that insurance anyway, you will come out ahead.
Your home is likely the largest purchase you will ever make. It does require a lot of saving and budgeting, but it is nice to know you get a bit of a break when it’s over with.