Buying a home is an exciting time in many people’s lives. It’s the point in your life when you stop paying rent and start building equity with a mortgage. While there are many practical benefits to owning a home, something many people don’t discuss is the tax breaks. (Click here to see all Northern Michigan Waterfront Lifestyle Homes for Sale)
As tax season is upon us, let’s take a look at some of the unique tax breaks that homeowners can take advantage of:
For many first-time home buyers, one of the most pleasant surprises come tax season is the knowledge that your mortgage interest is tax-deductible. At the start of January, you should have received a notice from your lender letting you know how much mortgage interest you paid throughout the year. Homeowners are allowed to deduct the tax from up to $1 million of debt used to purchase, or even, improve your home. (Click here to see Northern Michigan's finest collection of vacation rentals)
PENALTY-FREE IRA WITHDRAWALS
Breaking into your IRA early often comes with a 10 percent penalty fee. However, for first-time homebuyers, or buyers who have not owned property in two years, that fee is waived when the funds are used for a down payment on a home. At any time, first-time buyers can withdraw up to $10,000 from their IRA for a down payment without penalty. If you are married, both you and your spouse can withdraw $10,000 penalty-free. However, there are some restrictions and important factors to consider when breaking into your IRA, consult your financial planner or bank before making the decision.
Many real estate deals require buyers to pay “points” to the lender. Points are a percentage of the loan amount. In cases where the loan is secured by your home and you have paid an average amount of points for your area, these fees can also be deducted from your taxes.
Property taxes are also tax-deductible, to the surprise of many. Whether you pay your taxes directly to the municipality or through an escrow account, it’s easy to find out exactly how much property taxes you have paid throughout the year.
MORTGAGE INSURANCE PREMIUMS
If you purchased a home in 2018 without the minimum down payment required, you most likely paid a little extra for mortgage insurance. This helps the bank protect their investment. When you are doing your taxes, include the mortgage insurance premiums as a deduction. If you bought a house this year, make sure you get the most out of tax season this year by taking advantage of all the tax credits and deductions available.