With the recent tax reforms and the new tax laws, the tax landscape is changing for homeowners, dramatically for some. First time home buyers, in particular, must know what it means for them. Despite the tax changes (some of them not so favorable for some homeowners), the government still allows tax breaks for existing and new homeowners. Here, then, are some of the most important tax benefits for first time home buyers in Northern Virginia.
Tax-Free IRA Withdrawals for Down Payment
The biggest hurdle for most first time home buyers in Northern Virginia is coming up with that big down payment, often as much as 20% or more. But with the tax breaks in place, you may not have to save up all of that down payment.
The IRS allows you to dip into your IRA for a down payment, and you don’t have to pay the standard 10% penalty for early withdrawals. You can take up to $10,000 form your IRA without having to worry about the penalty. But you have to be a first time home buyer, and that money has to be applied toward the purchase of a home.
Mortgage Interest Deduction
The mortgage interest deduction has been one of the most important tax breaks for homeowners, especially for first time home buyers. The new tax laws have reduced the loan amount for which interest deductions can be taken, but that $750,000 limit won’t affect most first time home buyers.
This deduction is important for first-time buyers because the interest portion of the monthly mortgage payments is so much more in the early years of repayment. To take advantage of this tax benefit for first time home buyers in Northern Virginia, you will have to itemize deductions on the Schedule A. In addition, these deductions must be greater than the new standard deduction.
Deduction for Mortgage Points
A related tax benefit for first time home buyers in Northern Virginia is the deduction for mortgage points. Basically, these mortgage points are the prepaid interest that serves to help borrowers qualify for lower rates over the life of the loan. And, many times, mortgage points can do double duty by also qualifying for a tax deduction, which is often overlooked by home buyers.
Tax accountants maintain that these points are one of the best tax breaks going because they provide a two-fold return on investment. You can deduct the cost of the points as well as the interest paid in the year of the home purchase. But, again, you will have to itemize to take advantage of this benefit.
Deduction for Property Tax
One of the best tax benefits for first time home buyers in Northern Virginia is the deduction for property tax. You just need to itemize and deduct the property taxes paid during the year of filing. If you purchase a home part way through the tax year of filing, you can still claim all the property taxes paid from the date of sale. Just be aware, though, that under the new tax laws, there is a new cap for this deduction, and this cap also includes all local and state property taxes. The cap is $10,000 for the total deduction or $5,000 for married people who file separately.
There are still, then, some significant and important tax benefits for first time home buyers in Northern Virginia. To take advantage of as many as possible, you will want to consult your tax professional. But don’t forget to call on the expertise of your local real estate agent.