While there is no direct tax credit available for buying your home, homeownership has tax advantages.
This article will summarize some of these benefits and outline the tax changes from the Tax Cuts and Jobs Act of 2018 that will help in claiming tax credits as a new home buyer.
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Is There a Tax Credit for First-Time Home Buyers?
The short answer is, unfortunately, no. Many filers are familiar with the new homeowner’s tax credit as the “First-Time Homebuyer Credit,” passed in 2008 under HERA or the Housing Economic and Recovery Act under Obama.
This tax credit was up to $7,500 for first-time homebuyers, which was very exciting at the time.
Unfortunately, this tax credit expired in 2010, so you are not eligible for the credit unless you bought your home between 2008 and 2010. (If this situation applies to you, it’s highly advisable to see a tax professional.
There will be a number of specifics that you will need to address given the time frame that has elapsed since the credit expired)
There are some state and Local level incentives for mortgage credits, but you would need to receive a specific certificate and notification of your eligibility to claim those incentives.
Biden’s $15,000 First Time Homebuyer Tax Credit Proposal
Can You Claim Buying a New House on Your Taxes?
But, you can claim a new home tax credit for costs associated with mortgage interest, taxes, and insurance, depending on your exact filing situation.
This is capped at a total amount of $750,000 for married filers.
The new Trump Tax laws have changed many of the core tax tenants related to owning a home, such as the mortgage interest deduction limits and the standard deduction.
Tax Changes for New Home Construction
The main changes in the tax laws that you should be aware of are the mortgage deduction limits have changed and the raising of the standard deduction.
For deduction limits, the total mortgage interest rate deduction cap has been lowered to $750,000 compared to $1,000,000 previously. For higher-cost homes, this is a significant impact.
As a new home buyer, if you are still prospectively shopping, one thing you should consider is putting greater emphasis on putting more down when you buy a home.
The second significant tax change to be aware of as a new home buyer is that the standard deduction has doubled. For individual filers, the amount is now $12,000, and it’s up to $24,000 for married couples. There is speculation that this will have a significant impact on the value of homeownership. In addition, the standard deduction might make the mortgage interest deduction now inconsequential on lower-priced homes.
How Much of a Home Purchase is Tax Deductible?
When you purchase a home, there are a number of fees and taxes applied through the closing process beyond the principal amount you pay on the house.
Only the taxes associated with your house will be eligible to claim a new homeowners tax deduction.