Home Ownership: Are You Ready?
The purchase of a first home is an exciting time in anyone’s life. It’s
also a large financial undertaking, a fact that leaves many people wondering
whether they’re prepared for this big step. The Iowa Society of Certified
Public Accountants suggests you answer these questions to help you decide if
the time is right for you.
What’s the Hurry?
Owning your own home is a tempting prospect, but make sure that you are not
hurried into making a decision. Home sales have generally been slow for the
past year, which makes it less likely a house you like will be bought
overnight. Even when the market is hot, though, it’s best to look around in
different neighborhoods and at various types of homes to see what you can
afford and to be sure you have all the information you need.
How Much Will It Really Cost Me?
You are probably aware that you will need a down payment, usually about 20%
of the home’s purchase price, to buy a home and that you will then make
monthly payments on a mortgage that covers the rest of the total purchase
price. Those aren’t the only costs of home ownership, however. You will
likely also have to make monthly payments for local property taxes,
utilities, and home owners’ insurance, as well as cover one-time upfront
costs for moving and any furniture or appliances you need. Consider also the
price of any renovation or repairs the house may need, and for general
upkeep of the home and property around it.
How Do Taxes Come into It?
There are many potential tax deductions associated with home ownership that
you should be aware of as you plan your purchase. For example, many people
are able to deduct the interest they pay on their home mortgage loan. In the
early years of a mortgage, that interest is the lion’s share of your monthly
payment, so this potential deduction is a good thing. That’s because when
you take deductions, they lower your taxable income and, as a result, you
end up paying fewer taxes overall. In many cases the points you pay on a
mortgage loan may also be deductible. And, while real estate taxes are one
of the hidden costs you should be aware of, they are also deductible. All of
these deductions added together could mean a little more money in your
pocket each month.
What about the First-Time Homebuyer Credit?
If you have purchased a home this year or plan to do so before December 1,
2009, you may qualify for this tax credit. Using the credit for a home
purchased in 2009, you are allowed to claim 10% of your purchase price, up
to $8,000, or $4,000 for married people filing separately, as long as you
meet certain income limits (slightly different rules apply for homes bought
in 2008). Under revised rules, those who purchase in 2009 don’t have to
repay the credit if you don’t sell your home within three years of purchase.
The credit can be used for the purchase of a principal residence in the
United States if the buyer or his or her spouse has not owned a principal
residence at any point during the three years before the title closing date.
(The credit does not qualify for vacation homes or rental properties,
however.) If you think you might qualify, you can find out more information
about this credit in Internal Revenue Service Form 5405 or by speaking to
your local CPA.
Your CPA Can Help
Your local CPA can help you determine how much house you can afford and what
your monthly or one-time costs will be, as well as the tax effect of a home
purchase. Turn to him or her with all your financial questions. If you are looking for a CPA, go to
www.findanIowaCPA.com.
