Top 3 Tax Tips and Tricks for First Time Home Buyers in 2016 or 2017
Owning your own home comes with many advantages, including tax advantages! Home ownership generally brings with it multiple ways to lower your tax bill via deductions home owners are able to take which renters are not eligible for.
If you were a first-time homebuyer in 2016 and haven’t yet filed your taxes for last year, or if you are a prospective homebuyer for 2017 you might be unaware of the tax deductions you are able to take on your home. We find that first-time homebuyers generally have many questions (understandably!) so we’ve compiled our top 3 tax tips and hints for first-time homebuyers below:
Itemize your federal return
If you are used to taking the standard deduction on your taxes, you are in for a change! Once you own a home, it will most likely make better financial sense for you to itemize your taxes instead of taking the standard deduction. Your accountant or self-service tax software or program should be able to provide you a side-by-side analysis of your tax savings with using the standard deduction versus itemizing your return. It almost always makes better financial sense as a homeowner to itemize your taxes because you can deduct your mortgage interest payments, private mortgage insurance (PMI) paid and property taxes from your total income! For most people, those will be substantial figures which will reduce your taxable income (and therefore your total tax amount owed) significantly. These deductions, especially in combination with other deductions you might be able to claim such as qualifying medical expenses or charitable donations you’ve made over the past year often far exceed the amount of the standard deduction and can make a big difference on how much you’ll owe, or how much get back from the federal government.
Go green and get more green back
Did you know that in addition to being great for the environment, investing in energy-saving or “green” home improvements can be great for your pocketbook by earning you additional tax breaks? These tax breaks are usually issued through a direct credit on your state or federal taxes. There are both federal and state tax credits available for some green improvements made to homes like the installation of solar panels, solar water heaters, or energy-efficient windows. Check with your accountant, or your state tax rules to find out what might be available to you.
Keep and organize all your records
This tip might seem like a no-brainer, but for many people it’s easier said than done. We can’t emphasize enough how important it is to keep accurate and complete records as a homeowner. You never know where you’ll be able to find savings, through your taxes or otherwise. Saving your receipts and proofs of payments may be what stands between you and a lowered total tax bill. Additionally, keeping track of all improvements you’ve made to your property may have tax implications at the time of sale, and may save you a lot of money down the road.