If you’re thinking about buying your first home, you’ve probably heard that there are a number of tax benefits to being a home owner. The “First Time Homebuyer Tax Credit” is widely talked about, but there are a lot of misconceptions about it. Inform yourself about the myths about this tax credit and also other tax breaks you will more likely benefit from.
Myth: First Time Homebuyers Can Get a Tax Credit
The government started the First Time Homebuyer Tax Credit in 2008 as an incentive to boost the market. Changes made in 2010 made it more favorable, as homebuyers no longer had to pay the money back. However, the credit only applies to those who bought their home before April 30, 2010. If you’re only now starting to shop for a home, you won’t qualify for this program.
Myth: Those Who Received the Credit Get to Keep the Money
Calling the program a “credit” is a bit misleading. Those who bought homes under the 2008 program had to eventually repay the credit they received. Home buyers from 2009 do not have to pay the credit back, and home buyers from 2010 only have to pay the credit back if they move from the home earlier than three years.
Myth: You Can Still Get a Big Break from Tax Deductions
The IRS allows you to deduct interest payments on mortgage loans of up to $1 million. You may also be able to deduct the money paid for mortgage points at closing time and payments that go toward private mortgage insurance. In the early years of homeownership, a large percentage of the mortgage payment goes toward interest, so this is a good deal. To qualify for these deductions, you have to itemize deductions on your tax forms rather than taking the standard deduction. For a married couple living in a modestly priced home, the standard deduction may be higher than the amount of the mortgage interest paid over the year. In this case, you wouldn’t get a break from deducting mortgage interest.
While the First Time Home Buyer Tax credit may not be available anymore, there are still ways to make getting a mortgage more affordable. Talk to your lender to see if there are any special programs in your area that you may qualify for. And for more information about mortgages and which may be best for you, download our mortgage information whitepaper.