The Tax Advantages of Home Ownership
If you own your own home, there are some significant tax advantages that
can make the prospect more affordable. As a result of the uncertain economy,
the federal government has also recently extended a popular tax credit
through June of this year and broadened the number of people who qualify.
The Iowa Society of Certified Public Accountants explains all the details.
A Break for First-Time Buyers and More
The Obama administration late last year extended an $8,000 tax credit
available to all first-time homebuyers or anyone who hasn’t owned a home in
the last three years. Originally scheduled to expire on November 30, the
credit is now still accessible to homebuyers who sign a contract by April
30, 2010, and close by June 30, 2010. CPAs note that the tax break has been
broadened to additionally include anyone who has owned their current home
for five consecutive years out of the last eight and is now buying a new
one. These taxpayers can take a $6,500 credit on a new home, if they sign a
contract by May 1, 2010, and close by June 30, 2010. The credit reduces the
first-time homebuyer’s tax bill by the credit amount. For example, if you
owed $20,000 in taxes, you would only have to pay $12,000 after taking the
credit. You receive the credit even if you don’t owe any taxes or if your
tax bill is less than the credit amount. The credit is available for the
purchase of a principal residence costing $800,000 or less if purchased
after November 6, 2009. Homebuyers must be 18 or older when they make the
purchase.
Qualifying Income Levels Increased
The income limits to qualify for the credit have also been raised. For homes
purchased after November 6, 2009, the credit is open to those with modified
adjusted gross income under $125,000, or under $225,000 for those who are
married filing jointly. It phases out for those with incomes between
$125,000 and $145,000 (or between $225,000 and $245,000 for joint filers).
Existing income limits continue to apply to home purchases on or before
November 6, 2009.
Existing Deductions Remain in Force
In addition to this temporary credit, there are many existing tax deductions
associated with home ownership. As a general rule, you can deduct the
interest you pay on a mortgage that is below $1 million, as well as any
property taxes you pay. In addition, you can typically deduct the interest
on home-equity loans that amount to less than $100,000.
Affordability Is Key
Of course, all the tax advantages in the world are not going to help if you
aren’t financially prepared to purchase a home. Before you sign a contract,
carefully assess your financial situation to ensure that your income will
cover the costs of home ownership, including not only the monthly mortgage,
property taxes, and insurance payments, but also the maintenance and repair
expenses you will face. Don’t allow a tax break or any other incentive to
tempt you into buying a home you can’t really afford.
Consult Your CPA
Is home ownership right for you? Do you qualify for the federal tax credit?
Your local CPA can help you find the answers. Turn to him or her with any
financial questions facing your family. If you are looking for a CPA, go to
www.findanIowaCPA.com.
