By Chris Sloan, president of the Utah Association of REALTORS®
10 January 2009 - 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.