Homeowners know the financial challenges that such a large purchase can have on their financial budget and plans. It is restrictive on the things a person can do since some part of their income is expected to go towards paying the mortgage lender. To ease the burden of payment, there are a few tax breaks you could use to bring your taxes down.

Tax Write-offs That First-time Homebuyers Can Access?

Mortgage Interest

Mortgage interest deductions are among the largest tax breaks that homeowners can enjoy. If you purchased your home before 2018, you are eligible for deductions up to $1 million dollars in costs of either acquiring or improving your house.   

Mortgage interest deductions are reduced to $750,000 for any homes purchases after the 16th of December 2017.

Home Improvements

Always save records and receipts of any improvements you do on your home including fences, storm windows, landscaping, and other additions like energy-efficient furnaces. While you can not deduct these improvement expenses immediately, the costs add to the total cost when you decide to sell your house.

After the addition of these expenses, you can determine the home’s cost basis for tax purposes. Despite home-sale profit being tax-free, the IRS can ask for a part of the sales profit. Keeping good records will help you in limiting the IRS’s tax bill.

Energy Credits

Having an energy-saving system as part of your home improvements could earn you some additional tax write-offs. The government could provide you with a tax break on your energy tax up to $500. Note that getting a tax credit is relatively more valuable in comparison to a tax deduction. This is because the credit will reduce your tax figures dollar-for-dollar.

You could get a tax credit for about 10% of the cost it took you to qualify for energy-efficient skylights, insulation systems, roofs, and outside doors. You may also get a tax credit of around 10% for qualifying heat pumps, water heaters, water boilers, furnaces, and central air conditions.

In 2021, a credit was introduced that ensures tax credits of 26% of the purchasing cost of exotic and expensive energy-efficient equipment. Things like water heaters and solar-powered generators. 

Mortgage Points 

After buying a house, a buyer might pay points to their mortgage lender to get their home loan. This points charge normally goes as a certain percentage of the entire loan amount. To access this deduction, the loan’s collateral must be your house and you pay points that are average for your specific area. These points are treated as tax-deductible interest as long as the amount you paid during the closing through your down payment is equal to the points.¹ 

For instance, if you had paid three points (3%) on your $300,000 home loan, $9,000, the points are deductible if you had placed at least $9,000 of your money into buying the house. 

You could even deduct these points after convincing a seller to pay for them in the mortgage deal. The amount deductible each year should come in your 1098 form to be valid. 

Take Advantage of These Tax Write-offs and Own Your Dream House

First-time homebuyers go into the market with very little information. It is often possible to make multiple mistakes that can be costly. With the above information, you can go to the market confidently and save yourself some money.

 

“About Mountain West Financial and the CalPATH Home Loan Program

Mountain West Financial is the exclusive lender offering CalPATH, the #1 home loan program for Teachers, Police Officers, Firefighters, and other public employees who serve our local California communities.

You may contact our CalPATH Hotline @ 800-310-7577, seven days a week from (8:30 am to 8:00 pm) or visit our website @ mwfdirect.com. A CalPATH advisor will be standing by to answer (any & all) questions you may have about the home buying or refinance process.

We look forward to working with you soon!

Sincerely,

Joe Moore
CalPATH Division Manager
NMLS #333648″

 

Links to External Sources:

  1. Home Mortgage Points – https://www.irs.gov/taxtopics/tc504