Tax Credits for Home Buyers
If you’re considering buying a home, you’ve probably evaluated the various costs involved and weighed them against the value of owning your own home. What you should keep in mind is that there are also several Federal tax credits available when you purchase a home that could give you a sizable break on your income tax returns for 2016 and beyond. If you purchased a house in 2015, you may be able to claim some of these credits on your 2015 return. By itemizing your tax return, you can maximize these benefits. Always check with a Federal income tax specialist regarding any of these deductions before filing.
Mortgage Interest Deduction
The majority of your monthly mortgage payments will usually go primarily toward the interest on your loan, and you can deduct this interest when you’re doing your taxes. Your lender will send you a 1098 form that shows how much interest you paid and how much of it you can deduct.
Mortgage Insurance Premiums
If your loan value is greater than 80% of the total value of the home, you will have to carry some kind of mortgage insurance, which protects the lending institution if you default on the loan. Until your equity increases and you can waive the mortgage insurance, you can deduct the cost of the insurance as long as your adjusted gross income is less than $100,000 for a couple or $50,000 for an individual. For higher incomes, the deductible amount will be adjusted down or eliminated.
You can deduct both local and state property taxes if they are based on the assessed value of the property. If your taxes are paid out of an escrow account from your mortgage, you will receive a 1098 form with the total amount of the property taxes you can deduct. If you pay your property taxes yourself, be sure to keep copies of the bills and add them up.
The points you pay at the closing on your house can be deductible if it is your first home mortgage and the house is your primary residence. If you are refinancing an existing mortgage, the points may have to be spread out over the life of the loan.
Energy Efficiency Credits
Installing energy efficient doors, windows and/or skylights can be a great way to save money on your utility bills, but it can also get you a tax credit. You’ll have to install windows, doors or skylights that are Energy Star approved. For more information on EnergyStar, visit the U.S. Environmental Protection Agency, ENERGY STAR program. Keep the receipts and Energy Star labels in case you are audited. If they meet the criteria, you can deduct 10% of their total cost up to a cap of $500 for doors and $200 for windows and skylights.
If you’ve recently purchased a home or will be buying one in 2016, your best bet is to talk to an income tax professional so that you are getting all of the credits allowed without making any costly mistakes.