Tax breaks for
Shopping for your first home is a mind-numbing experience. Perusing the
real estate ads, you are constantly bombarded by six-figure prices. At some
point you have to ask, what's in it for me, besides a big down payment and
monthly mortgage bills that last for years? Tax deductions, of course! Welcome to the world of deductibility. Uncle Sam
has designed several tax breaks to make home ownership a little easier to
Three major items are deductible:
1 - Mortgage loan interest, including late fees.
2 - Loan origination or discount fee, or points.
3 - Property taxes.
Here's what the numbers mean to a hypothetical buyer of a $126,000 home.
Let's say you put 5 percent down, that's $6,300, and take out a 30-year loan
for the remaining $119,700 at 8.25 percent interest. Your total mortgage
interest payments for the first year would be $9,875. Subtract that from
your taxable income. Then subtract your property taxes, which vary according
to where you live, but will surely add up to at least several hundred
dollars. And if you qualify, you could deduct the purchase points, if any,
from your first year's return. One point is equal to one percent of the
loan, in this case $1,200. These are substantial tax deductions. Just the
mortgage interest alone, is a hefty tax break.
Remember that only the above items are deductible. You cannot deduct your
homeowner insurance, or loan processing fees, or private mortgage insurance.
Naturally, there are more financial considerations to purchasing your
first home than just the tax issue. Home ownership also involves a long-term
financial commitment, not only to a mortgage loan but to maintenance and
repair needs, as well. And your monthly mortgage payments may be higher than
rent you're paying now. But with these deductions, your annual tax bill may
come down enough to compensate for your higher monthly housing costs. Crunch
the numbers. Ideally, you want to reduce the tax withheld from your paycheck
and increase your cash flow.
As a renter, you probably enjoy just punching a few numbers every year
without worrying about claiming itemized tax deductions or collecting
documents to back them up. It may have been simple, but get ready to say
goodbye to the good old days of the form 1040-EZ. If you plan to take
advantage of allowable homeowner-related deductions, it's probably time to
take the leap to itemizing on your tax return.
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To determine your bottom line from a tax perspective, see how the total
homeowner-related deductions stack up against the standard deduction for non-itemizers.
If you qualify for these deductions, and they exceed the standard deduction,
then it pays to itemize and reduce your taxable income by buying your first
Be sure to consult with your tax advisor regarding
your specific tax position.
the Internal Revenue Service Tax site for additional information.
Begin the home buying process by making a "wish
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Mike Burns, CRS,
The Real Estate Group, Inc
5725 Windy Dr Suite E
Stevens Point, WI 54482
Direct: 715 295-5008
Cell: 715 498-1248
Fax: 715 295-5006