There are many things to consider when purchasing a new home, but the taxes on those homes might be one of the most complicated. To help make this process easier for you, we have gathered some essential facts about tax credits and deductions. Here are a few things you should know about new home buyer tax credits and deductions so that you can get ready for it.
The Homeowners Deduction
The Homeowners Deduction is a tax credit that allows homeowners to deduct the interest they pay on their mortgage. This includes interest paid on mortgages up to $1 million. The IRS limits this deduction to the first $500,000 of the loan amount and caps it at $2,000 per year.
The Mortgage Interest Deduction
The mortgage interest deduction allows you to take a certain amount of your mortgage interest off of your taxable income. This deduction is essential for financing their home purchase by taking out a mortgage. With this deduction, homeowners can save up to $1,000 in taxes each year, depending on their earnings.
What is the difference between a tax credit and a deduction?
A tax credit is a dollar-for-dollar reduction of taxes you owe. Deductions are subtracted from your taxable income. Typically, deductions lower your taxable income and make it less likely that you will have to pay taxes on the rest of your income.
What are the other credits and deductions that might apply to me?
This is not an exhaustive list of the credits and deductions that might apply to you, but it does provide a good starting point for your research.
Depending on your income, you may be eligible for the Making Work Pay credit as well as the Child Tax Credit. These two credits can equal up to $1,000 for a family of four and are available to many people. Other credits include the Earned Income Tax Credit, which could be available to you if you work low-income jobs and earn less than $48,725; the Family Care Credit, which can help those with children who have special needs pay for medical expenses; and the Mortgage Credit Certificate which can help those with low-interest mortgages get a tax credit of up to $500.
The deductions that might apply to you include Expenses related to purchasing or selling a home, such as property taxes, homeowners insurance premiums and real estate commissions.
The new tax code has many provisions that can affect you. It is essential to understand how this impact your financial situation. Make sure to consult with a tax professional before claiming any tax credits or deductions. For more, visit this website: americantaxservice.org