global Tax Are there Tax Credits Available to Home Buyers? March 06, 2023 Are you looking to buy your first home? You’ll want to read up on the mortgage interest deduction and other valuable tax credits. There is also a new potential tax credit to look out for that could lead to major tax savings if passed. Attention homebuyers…are you up to speed on the tax credits available to you? We have some insight here. Home mortgage interest deduction Mortgage interest is the biggest tax break for homeowners. What is the home mortgage interest deduction? Prior to the Tax Cuts and Jobs Act (TCJA), taxpayers could deduct up to $1.1M of home acquisition indebtedness, used to acquire their principal residence and a second home (acquisition debt). For 2018-2025, the TCJA allows taxpayers to deduct up to $750,000 of qualified residence interest if it qualifies as home acquisition indebtedness. Check out our blog, Is Home Mortgage Interest Deductible? for more information. Other Tax Breaks for Homeowners: Below are other tax credits homebuyers can take advantage of: Taxpayers are allowed to deduct property taxes, but only up to $10,000 combined from your property taxes and state and local income taxes. This deduction is most advantageous to taxpayers who do not pay state and local income taxes based on where they live.Mortgage points or “discount points” can be deducted in the year that you pay for them. One home mortgage point is equal to one percent of the amount of your loan. If the outstanding loan on your home exceeds $750,000, you are limited on the number of points that you can deduct.Home office expenses are deductible for those that are self-employed. Taxpayers may be able to take deductions such as mortgage interest, insurance, utilities, repairs and maintenance, depreciation, and rent. Check out our blog, Home Office Deductions- A New Simplified Calculation for more information.Through December 31, 2022, the energy efficient home improvement credit is a $500 lifetime credit. Effective on January 1, 2023, the energy efficient home improvement credit is increasing with an annual credit up to $1,200. The amount of the credit is equal to 30% of the sum of amounts paid by the taxpayer for certain qualified expenditures, including qualified energy efficiency improvements installed during the year, residential energy property expenditures during the year, and home energy audits during the year. There is a New Potential Tax Credit to Look Out For. What is the First-Time Home Buyer Tax Credit of 2021? In April of 2021, U.S. lawmakers introduced the First-Time Homebuyer Act of 2021. The first-time homebuyer tax credit first emerged during the 2008 financial crisis to help make it more affordable for first-time homebuyers to purchase a home in the United States. The tax credit was worth up to $7,500 in 2008 and $8,000 in 2009. This credit expired on September 30, 2010. Eleven years later, U.S. lawmakers introduced the First-Time Homebuyer Act of 2021. If passed, this bill would introduce new updates to the first-time homebuyer tax credit 2008, including modifying the income formula for determining the maximum allowable credit amount, updating the limitation on the credit based on purchase price with a limitation based on area median purchase price, and revising the rules relating to repayment of the credit. This tax credit would grant first-time homebuyers a tax credit of 10% of their home’s purchase price, up to $15,000 ($7,500 for married filing separately). This credit would also be fully refundable and apply to primary residences only. This credit would not be subject to the same repayment requirement as the 2008 First-Time Home Buyer Tax Credit. However, if you sell your home within four years of claiming the tax credit, you will have to pay some, if not, all the money back. We’ll keep you posted if this bill passes. Questions? Contact us.
