12 January 2009

Take advantage of newest homeownership tax breaks-UAR Presidents message 1/10/09

Take advantage of newest homeownership tax breaks

President's Message

Chris Sloan

The tax benefits of homeownership have always been incredible, but for 2008 filers there are even more homeownership-related tax breaks to choose from thanks to the federal government's economic stimulus package.

With the start of tax season, here's a review of both the new and existing tax breaks from which homeowners can benefit. And if you're not a homeowner yet, here are some great reasons to think about becoming one.

Newly Expanded Property Tax Deduction

            Homeowners who itemize their deductions have traditionally been able to deduct all of their state and local property taxes from their federal income taxes, one of the major financial benefits of homeownership.

While this favored tax break will continue in its customary form for 2008 filers, it has also been expanded to benefit taxpayers who use the standard deduction. With the passage of the Housing and Economic Recovery Act of 2008, homeowners who don't itemize can deduct property taxes from their federal income taxes, up to $500 for single filers and $1,000 for joint filers.

First-Time Home Buyer Tax Credit

One new tax break we've heard a lot about in the past few months is the $7,500 tax credit for first-time home buyers who purchase a home between April 9, 2008, and July 1, 2009.  Even though it's referred to as a credit for first-time buyers, it can also be taken by any home buyer who has not owned (nor has their spouse) a principal residence in the past three years.

            What's great about this tax benefit is that it's a credit, meaning it will reduce the amount of taxes you owe dollar for dollar. That means if you owe $5,000 in taxes, you'll receive a check for $2,500. Another plus is that even if you haven't bought a home yet, if you're planning on doing so in 2009 before you file your taxes, you can choose to take the credit on your 2008 return.

            Taxpayers should note the credit has to be paid back over 15 years, essentially making it an interest-free loan. There are also income restrictions, and because the amount of the credit is determined by the property's purchase price, not all homes will qualify for the full $7,500, although most will. More information about this tax credit can be found at UtahHousingFacts.com.

             

Private Mortgage Insurance Deduction

            Another relatively new deduction, which was used for the first time last year, is for those who pay private mortgage insurance. Private mortgage insurance, which is designed to protect the lender if the buyer can't repay the loan, is typically required for mortgage-holders who have less than 20 percent equity in their homes.

With the PMI deduction, taxpayers can deduct their premiums, including those for FHA and VA loans, as mortgage interest. The Mortgage Insurance Companies of America estimates this deduction is worth $350 per taxpayer.

            The deduction is only available if you got your home loan after 2006, and will only be available through 2010, unless Congress extends the deduction. Eligible taxpayers must have adjusted gross incomes of less than $100,000 ($50,000 if married filing separately) to qualify for the full deduction, and a partial deduction may be available for those earning up to $109,000.

Mortgage Interest Deduction

            This deduction is the granddaddy of them all. It has been around for years and offers a great incentive for buying a home. Here's how it works: The IRS allows you to deduct all the interest you pay on your mortgage in the year it is paid. That includes interest on any loan taken out to buy, build or substantially improve a home. Because your payment is mostly interest in the early years of your mortgage, this can add up to thousands of dollars in tax savings. Interest paid on second home, home equity and piggyback loans can also be deductible.

Other Tax Breaks

            The tax breaks listed above are just a few of the homeownership-related benefits from the IRS. Home buyers can also deduct the points, or loan origination fees, associated with getting a home purchase mortgage. And there are tax benefits for moving, selling or installing energy-efficient features in your home.

For specific tax advice or questions about any of the information presented in this article, consult your tax advisor. To learn more about buying or selling a home, contact your local Realtor or visit UtahRealtors.com.

 
Anonymous comments are disabled