Tax relief for first time home buyers can be a much welcomed benefit of owning a home. This is partially due to the large expenses that come with buying a home for the first time. For example, closing costs, furnishing, repairs, moving expenses, home insurance etc. can add up to thousands of extra dollars in the first year of ownership.
Income tax deductions and credits can help reduce the financial burden for first time home buyers. However, there are also some taxes that are unavoidable such as property tax that is also a significant cost for first time home buyers. Several areas of taxation affect first time home buyers; some of these are listed and then discussed below.
Mortgage interest deductible on IRS Schedule A:
Many home buyers buy homes to make more productive use of money that is paid in rent as it builds net worth over time which helps with credit, financial stability, raising a family etc. When a home is purchased with a mortgage the interest paid on that mortgage for any given tax year may be deducted from taxable income using an IRS Schedule A. This may help lower the total taxes due to the Federal Government.
Capital gains tax exclusion
In the 2009 tax year, up to $250,000 of capital gains can be excluded from taxable capital gains for tax filing as a single person with primary residences that qualify for the exclusion. Among the rules of qualification are residence within the home for at least 2 of the previous 5 years with any depreciation from business use of the home deducted. For more information on this capital gains exclusion for home owners IRS publication 523 may be of assistance.
FHA loans down-payment percentage and tax credit
The tax credit mentioned in paragraph 1 may be used for the down payment of a Federal Housing Administration (FHA) loan. This application must be successfully approved and processed by the mortgage lender and may only apply to specific types of loans and costs. First time home buyers may receive low down payment percentage loans of 3.5%; even with a tax credit application ones debt to credit ratio may rise overall. Information on the FHA tax credit advance can be found at the following Department of Housing and Urban Development link (HUD) and is also subject to the time period in which the credit is in effect.
Income tax deductions and credits can help reduce the financial burden for first time home buyers. However, there are also some taxes that are unavoidable such as property tax that is also a significant cost for first time home buyers. Several areas of taxation affect first time home buyers; some of these are listed and then discussed below.
Mortgage interest deductible on IRS Schedule A:
Many home buyers buy homes to make more productive use of money that is paid in rent as it builds net worth over time which helps with credit, financial stability, raising a family etc. When a home is purchased with a mortgage the interest paid on that mortgage for any given tax year may be deducted from taxable income using an IRS Schedule A. This may help lower the total taxes due to the Federal Government.
Capital gains tax exclusion
In the 2009 tax year, up to $250,000 of capital gains can be excluded from taxable capital gains for tax filing as a single person with primary residences that qualify for the exclusion. Among the rules of qualification are residence within the home for at least 2 of the previous 5 years with any depreciation from business use of the home deducted. For more information on this capital gains exclusion for home owners IRS publication 523 may be of assistance.
FHA loans down-payment percentage and tax credit
The tax credit mentioned in paragraph 1 may be used for the down payment of a Federal Housing Administration (FHA) loan. This application must be successfully approved and processed by the mortgage lender and may only apply to specific types of loans and costs. First time home buyers may receive low down payment percentage loans of 3.5%; even with a tax credit application ones debt to credit ratio may rise overall. Information on the FHA tax credit advance can be found at the following Department of Housing and Urban Development link (HUD) and is also subject to the time period in which the credit is in effect.
Property tax and property tax deductions
Homes are often taxed at the municipal level at a rate approximately between 1-2% of the home’s value as assessed or determined by the tax authority. The taxable property amount may be lower than the market price of a home. For example, a home that could be sold for $80,000 in the real estate market may only be taxed for an assessed value of $70,000. This tax is also deductible on IRS Schedule A if itemized deductions are used on the tax payers Federal tax return. More tax information for first time home buyers can be found in IRS Publication 530.
First time home buyer tax credit through April 30, 2010: (expired)
Perhaps the most beneficial aspect of buying a home is capital appreciation, but until April 30, 2010 another incentive for first time home buyers exists. This incentive is the first time home buyers tax credit. This credit can be as high as $8,000.00 which in many cases is a recovery of sizable sunk home costs such as down payment. There are several requirements for this program such as purchase date, income amount, and residential history. For more information on this program please visit the first time home buyers tax credit information at Federal housingtaxcredit.com or the following articles on the first time homebuyer tax credit.
Perhaps the most beneficial aspect of buying a home is capital appreciation, but until April 30, 2010 another incentive for first time home buyers exists. This incentive is the first time home buyers tax credit. This credit can be as high as $8,000.00 which in many cases is a recovery of sizable sunk home costs such as down payment. There are several requirements for this program such as purchase date, income amount, and residential history. For more information on this program please visit the first time home buyers tax credit information at Federal housingtaxcredit.com or the following articles on the first time homebuyer tax credit.
First time home buyer tax tips
• Not paying taxes at any level may lead to a tax lien foreclosure on a property which involves Government seizure of the property. To avoid this type of scenario paying taxes, creating payment plans and exploring alternatives may be helpful.
• Property that is rented and not lived in may not qualify for first time home buyers tax credit thats buyers contract qualification expires in 2010.
• Real estate used for income generating purposes may deduct expenses such as condo fees from business expenses and may also depreciate the value of the property.
• A home may not incur a net gain in terms of capital appreciation if the homes value does not exceed the amount paid in mortgage interest.
• For each type of home buyer tax issue it can be a good idea to research aspects unique to that situation. For example, determining Modified Adjusted Gross Income to determine how close to meeting or not meeting the first time home buyer tax credit one is.
• Not paying taxes at any level may lead to a tax lien foreclosure on a property which involves Government seizure of the property. To avoid this type of scenario paying taxes, creating payment plans and exploring alternatives may be helpful.
• Property that is rented and not lived in may not qualify for first time home buyers tax credit thats buyers contract qualification expires in 2010.
• Real estate used for income generating purposes may deduct expenses such as condo fees from business expenses and may also depreciate the value of the property.
• A home may not incur a net gain in terms of capital appreciation if the homes value does not exceed the amount paid in mortgage interest.
• For each type of home buyer tax issue it can be a good idea to research aspects unique to that situation. For example, determining Modified Adjusted Gross Income to determine how close to meeting or not meeting the first time home buyer tax credit one is.
Sources:
1. http://www.irs.gov (Internal Revenue Service)
2. http://www.hud.gov (U.S. Department of Housing and Urban Development)
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