Two types of tax savings for home buyers---when you buy and every year
If you really want to keep your money in your pocket and not in Uncle Sam’s, there’s really no better way to do that than through buying a home.
There are two general types of tax savings for home buyers: those that are ‘one time only,’ when you buy your house and, better yet, those that you can enjoy year after year.
The biggest of course, are the tax credits for first time and repeat home buyers.
If you are a first time buyer, and you bought a home last year–or get one under contract by the end of April that closes by the end of June–you could qualify for the $8000 tax credit.
What if you already own a home but want to trade up or down? Well, if you did it after November 6th, 2009, or again, you get a house under contract by the end of April and close by the end of June, you could get the repeat home buyer credit of $6500.
There are a few restrictions. Here are some examples:
- If you purchased your home from a sibling, parent or grandparent, you are not eligible for the tax credit. However, buying from an aunt, uncle, niece or nephew is still OK.
- If you purchased your home after November 6th, there is an $800,000 dollar limit on the price.
- There are income limits as well, depending on when the home was purchased. The homebuyer tax credits for properties that sold before November of last year had an income limit of $95,000 for individuals and $170,000 for married couples. Since November, those limits have been increased to $145,000 for individuals and $245,000 for couples.
To take advantage of the 2009 tax credit, you will need to fill out an additional tax form. It’s IRS form number 5405. You’ll also need a copy of the settlement statement that you received when you purchased your home. All of this should be included in the tax return that you send to the IRS. And you will be sending that return through the mail, because the credits cannot be claimed through electronic returns.
Again, these homebuyer tax credits will expire on April 30th. It’s akin to the government taking up to $8000 right off your tax bill, so if you can take advantage of the opportunity, make sure to call your Realtor and ask about it. Then go see some houses!
But this tax credit isn’t the only one-time tax break you’ll have when you buy a house. If you moved more than 50 miles, and a new job is the reason why, you can deduct some, if not all of your moving expenses, including storage, hotel and travel costs, and even mileage on your car.
You’ll also find one-time tax savings at the closing table. Any pre-paid interest points you may have paid on your loan are also fully deductable, and so are local or state property taxes, regardless of whether you wrote the check yourself or if they were withdrawn from your home’s escrow account.
So you can see why the first April 15th after you buy your home can be a very happy tax day indeed!
But remember, there are one-time tax deals, and even better ones, that help you on your taxes year after year! And of course, the biggest one is the interest you pay on your mortgage. All of that interest is fully deductable up to a million dollars a year. Property taxes can be deducted too, every year.
When you add it all up, deducting your mortgage interest and your property taxes will have a huge impact on your tax bill. A positive impact!