Buying a new home is not cheap. You have to pay the down payment and closing costs, which include real estate attorney fees, underwriting fees, and title fees. While paying for all these, you have not considered moving costs, décor, and furnishings. As the home buyer, you may buckle under all these expenses, and a little respite would be welcome. The break comes in the form of the new home tax credits that you can take advantage of. There are, however, specific criteria that determine your suitability for the credits.
Who Is A First-Time Home Buyer?
According to the U.S Department of Housing and Urban Development (HUD), first- time home buyers vary. A single parent who only owned a home with a former spouse qualifies as first-time home buyers. Find out whether you meet the eligibility criteria in your state.
The five new home tax credits to take advantage of are:
- State-level first-time homebuyer tax incentives
Some states have programs designed to give support to first-time homeowners when they buy a new home. Find out what the motives are in your particular state, and if you meet the criteria for qualification. For example, In New Jersey, you have to, among other requirements, have been domiciled and lived as a tenant in a principal residence during that tax year.
- Mortgage interest credit
Mortgage interest credit applies to all new homeowners who fall under a particular level of income and is an up to $2,000 yearly tax credit. It is not the same with a mortgage interest deduction, which does not specify the income level, and is available to all. The mortgage interest deduction is for up to $750,000 in mortgage interest. If you qualify for both options, you can take advantage of them.
- Property tax deduction
Another significant expense for first- time home buyers is property tax, though you can deduct this tax both local and state, from your federal taxes. You can deduct a minimal amount. Before, the deductible property tax was unlimited. This limit was capped to $10,000 by the Cuts and Jobs at 2017, up to 2028.
- Residential energy credit
If you install wind turbines, solar panels, water heaters, geothermal heat pumps, etc. you are eligible for the residential energy credit. This credit is up to 30% of the purchase amount and costs of installation.
- Penalty-Free IRA Payouts
You cannot withdraw money from an IRA account before you turn 59 and a half years, and not pay tax on the withdrawal. First-time homeowners can withdraw to the tune of $10,000 without getting a tax penalty. If the purchase is a joint effort with a spouse, both parties can withdraw from their accounts.
You can withdraw from Roth IRA account any time and with no tax penalty incurred. It is a bad idea to borrow too much from your retirement savings. Do not stretch yourself thin by buying a house you cannot afford.