Making your first home purchase is an exciting time, but it can be a stressful time as well. There is a lot to understand and a lot of misinformation out there to sort through.
One of the most important things for anyone looking to buy their first new home to know about is the tax credit for home buyers. What is it and how does it work?
What Is the Tax Credit for Home Buyers?
When you’re embarking on your first new home search, you have the chance to take advantage of a first-time home buyer tax credit. This tax credit is designed to assist people, especially families, who are looking to make their first home purchase.
This is a tax credit, not a tax deduction.
The difference is that a tax credit lets you subtract the credit from the total amount of taxes that you owe, rather than simply using it to reduce your income.
In other words, it’s not dependent on your income and helps you save more. Anyone looking at homes for sale for the first time should check to see if they qualify.
In short, anyone who is buying a home for the first time should qualify. Additionally, there are stipulations that allow you to take advantage of the credit if you’ve owned a home before. If it has been three years since you owned a principle property, or you have recently gone through a divorce and owned property with a previous spouse, you can qualify.
The qualifications for the first-time home buyer tax credit are federal, not state. Whether you’re doing a property search in Orlando, or in Seattle the rules are the same. You can find out additional rules to qualify at the IRS website.
Be Sure to Take Advantage of Home Ownership Tax Deductions
The first time home owner’s tax credit isn’t the only way that your home can save you money on your taxes. The interest that you pay on your mortgage and your home owner’s tax are both deductible from your income.
While these aren’t as significant as a tax credit, if you are minimally in a higher tax bracket you can use them to get into a lower bracket and pay substantially less. When you’re looking at a new listing, be sure to take these savings into consideration when you’re calculating your budget.
Keep in mind however, that the amount you pay in taxes on your mortgage and home owner’s tax will probably never be offset by the tax savings you get by subtracting them from your income. Buying a more expensive home in order to save is almost always counterproductive.
If this is going to be your first new home, there are many ways to save when you are looking at homes for sale. Make sure that you take the time to educate yourself about the many ways to save before you buy.
Owning a home can be incredibly rewarding and our team of real estate agents can help you get started.