Taxes and Buying Your First Home
Yes, buying a home can have a positive impact on your tax bill. But buying a home is an expensive way to save on your taxes. That said, there are advantages that are hard to ignore. So I thought I would take a few moments to discuss the Pros and Cons of taxes and how the purchase of your first home may impact how you file on April 15 th .
As a renter, you did not get one of these forms. In fact, your taxes were relatively simple and straightforward, usually encompassing a single page. Those days are over. The form 1098 is sent to you at the end of the year and is filed with your taxes. It shows the IRS how much you paid in mortgage interest, which is deductible. PRO: You get to deduct the interest you paid. CON: You have paid a lot of interest on your mortgage and in the early years, barely made a dent.
First off, you may ask: What are points? According to HR Block, “Each point equals 1% of the purchase price of the home.” And this is deductible but I am not qualified to tell you how or why and this publication by the IRS suggests that it is indeed complicated. PRO: Points are deductible. CON: You might need a tax preparer to help you this year.
As a renter, you aid property taxes but they were hidden inside of your rent payment. In some instances, each rent increase was a result of rising taxes. Now as a homeowner, you will also pay property taxes and the good news (if there is such a thing as good news when paying taxes) it is deductible. PRO: You can set up an escrow account so this, and your insurance, can be deducted on a monthly basis so as to not get hit with a four or five figure tax bill right around the holidays. CON: It is yet another expense you may not have considered.
PMI is Deductible
Private Mortgage Insurance or PMI is the result of a lower down payment. PMI protects the lender from default because you were unable to put 20% or more down on the loan. That benchmark is largely considered the dividing line for the risk the bank is willing to take. PRO: PMI is deductible and will often be included in the 1098 the lender sends you. CON: If you had put more down, you wouldn’t be paying this additional payment every month. (Note: It can be canceled once your home’s equity reaches 20%).
The Bottom Line
You will get money back from the IRS due to all of these deductions. PRO: It will be an excellent opportunity to build an emergency account, often suggested to be six months of your household income. CON: The temptation to spend it will need to be overcome.
How can we assist you today?
On behalf of The Jones Group @ Sunriver Realty
Nola Horton-Jones, Principal Broker/Realtor | ABR, C-RIS, e-PRO, GREEN, RSPS, CCIM Candidate
Bryce Jones, Principal Broker/Realtor | ABR, CRS, e-PRO, GREEN, GRI, RSPS, SFR
The Jones Group @ Sunriver Realty | 57057 Beaver Drive | Sunriver, OR 97707
N Mobile: 541-420- 3725 | B Mobile: 541-420- 4018 | Fax: 541-593- 5123
Licensed in Oregon