How To Claim The Tax Credit
Since the bill is not yet law, its not clear how homebuyers will be able to claim the tax credit step-by-step. But its likely that it will be similar to the First-Time Homebuyer Credit of 2009, which was a similar program and which required homebuyers to fill out an extra IRS form to attach to their federal tax return.
If the First-Time Homebuyers Tax Credit is passed, consult with an accountant or visit government websites for more information about how to apply the credit to your tax return.
Nc Home Advantage Tax Credit
The NC Home Advantage Tax Credit enables eligible first-time buyers and military veterans to save up to $2,000 a year on their federal taxes with a Mortgage Credit Certificate . This leaves you with more money to put toward your mortgage payment. If you qualify, you can claim a federal tax credit for 30% of the interest you pay on an existing home up to $2,000 per year for every year you live in your home. You may also be eligible for our NC Home Advantage Mortgage with down payment assistance to boost your savings even more! We offer these products statewide through participating lenders.
How does an MCC work?
In order to receive the NC Home Advantage Tax Credit, you must apply and be approved for an MCC from the NC Housing Finance Agency prior to purchasing your home. You apply for the MCC at the same time as your mortgage. Once you’re in your new home, you’ll receive your MCC and be set for tax time!
Heres an example of how this tax credit works. On a $148,000 mortgage with an interest rate of 4.5%, you might pay $6,660 in interest the first year. The MCC would allow you to take a federal income tax credit of $1,998 for that year. Please note that you can still claim a mortgage interest deduction for the remaining 70% of the mortgage interest you paid.
Other Tax Deductions For First
Purchasing a home can be very expensive, but homeowners are allowed to deduct some of the costs when they file their taxes. Generally speaking, you can only deduct costs that are paid on an ongoing basis, such as mortgage interest.
Here are some of the costs that can be deducted after buying a home:
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Benefits Of Being A First
First-time homebuyers can take advantage of multiple programs and benefits catered to their needs. For instance, you might be concerned about your down payment, which is generally 6% to 7% of the homes sale price for first-time buyers. However, there are programs to help cover your down payment as well as the closing costs .
If the First-Time Homebuyer Act of 2021 passes, eligible homebuyers will receive a refundable tax credit of up to $15,000 dollars.
There are also loans that require small down payments, like Federal Housing Administration 203 loans, and loans that dont require down payments at all, like U.S. Department of Agriculture Single Family Housing loans.
At times, the federal government has further incentivized homeownership by offering tax credits to first-time homebuyers. Unfortunately, the tax credit for first-time homebuyers from the 2008 Housing and Economic Recovery Act expired in 2010.
However, at the time of publishing, theres a bill with Congress that, if passed, would offer first-time buyers who qualify a refundable tax credit equal to 10% of their homes purchase price.
How the credit would work: If your tax bill for the year were $5,000 and you received a refundable tax credit of $15,000, you would get a $10,000 check from the federal government for that year. Just be aware that if the bill passes in its current form, this tax credit is capped at a maximum of $15,000.
The Benefits Of Buying Your First Home Can Last For Years
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Buying your first home can be a challenge, but it has a number of advantages for your long-term financial health, from a source of equity to tax breaks.
First-time homebuyers, who make up about half the mortgage market, can take advantage of several benefits designed just for them. These benefits include federal and state government programs that can help them overcome the challenges of buying a home for the first time.
Learn more about what kind of benefits you can receive as a first-time homebuyer, and whether you qualify to receive them.
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What Is A Tax Credit
Tax credits are reductions in the amount of income tax that you have to pay each year. Unlike tax deductions, which reduce your taxable income, tax credits lower the amount of tax you have to pay, dollar for dollar. If you qualify for $2,000 in child tax credits, for example, that means that you have just lowered your tax liability by $2,000. First-time home buyers need to be familiar with both tax credits and tax deductions during their house hunt.
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How Does The $15000 Tax Credit Work
In a nutshell, this refundable tax credit may be applied to your tax return at the end of the year and is equal to 10% of a homes purchase price. It cannot exceed $15,000 in total. For instance, if your home is worth $200,000, you will still only receive $15,000 in tax credits, not $20,000 .
However, the tax credit amount will follow a presumed 2% inflation rate. Over the years, this may change the maximum tax credit amount from $15,000 in 2021 up to $16,236 in 2025.
When the tax credit is applied, it goes directly to your tax bill and may not be used for state taxes. Married couples who file separately are only able to claim half of the available credit each.
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Tax Break : Mortgage Interest
Homeowners with a mortgage that went into effect before Dec. 15, 2017, can deduct interest on loans up to $1 million.
However, for acquisition debt incurred after Dec. 15, 2017, homeowners can only deduct the interest on the first $750,000, says Lee Reams Sr., chief content officer of TaxBuzz.
Why its important: The ability to deduct the interest on a mortgage continues to be a significant benefit of owning a home. And the more recent your mortgage, the greater your tax savings.
The way mortgage payments are amortized, the first payments are almost all interest, says Wendy Connick, owner of Connick Financial Solutions.
Note that the mortgage interest deduction is an itemized deduction. This means that for it to work in your favor, all of your itemized deductions need to be greater than the new standard deduction, which the Tax Cuts and Jobs Act nearly doubled.
And note that those standard deduction amounts increased for the 2021 tax year. For individuals, the deduction is now $12,550 , and its $25,100 for married couples filing jointly . The deduction also went up to $18,800 for the head of household . And if youre 65 or older, you can add on an extra $1,350 per person if married and filing jointly or an extra $1,700 if youre a head of household or a single filer.
As a result of these increased standard deductions, itemizing your deductions may simply not be worth it this filing season.
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What Information Is Required For Filing
A new year has rolled around and you are finally ready to sit down and take a look at those tax forms. If it is near the end of January or the beginning of February, you might have already received a W-2 form in the mail from your employer. This is a form that lists all of the wages you earned and taxes taken out of those wages throughout the year. HOLD ON TO THIS FORM!! It will become necessary to file your taxes going forward.
The W-2 form has all of the information you will need to plug in when you file your 1040 or 1040EZ with the government. It is all neatly printed out in organized boxes so that you can follow instructions on the other forms as you fill it out. Remember, it is up to you as a taxpayer to file your taxes on time. This applies even if you are not expecting to receive a refund. You have until April 15th each year to file.
If you are paid as a contractor you may receive compensation on a 1099-MISC form. Interest payments from banks are recorded on 1099-INT forms.
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What Is The First
U.S. Representative Earl Blumenauer and other lawmakers introduced legislation in April 2021, to support first-time homebuyers with a refundable tax credit of up to $15,000.
Dubbed the First-Time Homebuyer Act of 2021, this legislation aims to incentivize housing stability and generational wealth-building opportunities for low- and middle-income Americans, particularly amongst historically marginalized communities, Blumenauer said in a press release.
A similar tax credit had been approved as part of the 2008 Housing and Economic Recovery Act. And Blumenauer said that the credit was claimed by nearly 1.5 million households to assist in their purchase of a home.
Text for the bill says that first-time homebuyers of a principal residence in the U.S. could claim a tax credit equal to 10% of the purchase price of the tax residence during that tax year. However, this tax credit cannot exceed $15,000. Depending on your tax-filing status, the bill limits the credit to $7,500 for married individuals filing separately.
You should note that as of December 2021, the bill still needs to be approved in both chambers of the Congress before it can be signed into law by the president.
If you are looking for other tax credits, we cover some options in the What Can You Deduct After Buying a Home section below.
Medically Necessary Home Improvements
As part of the medical expenses tax deduction, you can deduct medically necessary home improvements that help you, your spouse or dependents who live with you. Examples include widening doorways, installing ramps or lifts, lowering cabinets and adding railings.
This is another tricky deduction to qualify for. Not only do you need to be itemizing to claim it, but you can only deduct medical expenses that exceed 7.5% of your AGI. Modifications that increase the value of your home must be prorated so your deduction only applies to the medical part of your spending.
Tax Credits For First
While this proposed bill is the most exciting potential credit for first-time homebuyers, it doesnât exist as of this writing. So, if youâre looking to buy your first home in the near future, there are other ways you can find tax credits.
Most states offer first-time home buyer programs that include tax credits, and may even provide zero-interest loans and grant money to put toward a down payment.
In Texas, for example, the Texas State Affordable Housing Corporation offers mortgage tax certificates that let you deduct a large portion of your mortgage interest on your annual federal tax return.
Most state programs have a maximum limit on income and property value since they cater to lower-income buyers, but theyâre worth checking out to see if you qualify.
If you have a Roth IRA or traditional IRA, first-time homebuyers are also allowed to take up to $10,000 out of their accounts to buy a home. Each account has different rules and tax consequences, so if you need a little extra help with your down payment, discuss this tool with your real estate agent before pursuing it.
Deduction Of Medically Necessary Home Improvements
You may qualify for a medical expense deduction if you install special equipment in or make modifications to your home for medical reasons. Common examples of medically necessary upgrades to a home include adding ramps, widening doorways, installing handrails, lowering cabinets, moving electrical outlets, installing lifts or elevators, changing doorknobs, and grading the ground to provide access to the home. Costs for the operation and upkeep of these upgrades are also deductible as medical expenses if the upgrade itself is medically necessary. However, improvements that simply make your home more elderly-friendly aren’t deductible if they’re not medically necessary.
There are some limitations, though. You have to itemize on Schedule A to claim the deduction, and you can only deduct medical expenses that exceed 7.5% of your adjusted gross income. The deduction is also reduced by any increase in the value of your property. So, for example, if you spend $50,000 to install an elevator, and that increases your home’s value by $40,000, you can only deduct $10,000 . And, again, the upgrade must be for a medical reason.
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Know About Native American Options
Native American first-time homebuyers can apply for a Section 184 loan . “Next to the no-money-down VA loan, this is the best federal-subsidized loan offered,” says Ferraro. This loan requires a 1.5% loan upfront guarantee fee and only a 2.25% down payment on loans over $50,000 .
Unlike a traditional loan’s interest rate, which is often based on the borrower’s credit score, this loan’s rate is based on the prevailing market rate. Section 184 loans can only be used for single-family homes and primary residences.
How Much Is A First
Loan limits can depend on the type of loan you want to qualify for, and they arent necessarily restricted to first-time buyers. The FHAs loan limit is $420,680 as of 2022.
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Home Improvement And Repairs
Generally speaking, repairs or improvements made on the home cannot be deducted however, home improvements made can make the house last longer, change it to be acceptable for a different use, or simply increase the homeâs value, resulting in the consumerâs home becoming more tax valuable if the improvement is funded through refinancing. Simply by adding features like an additional bathroom, swimming pool or covered porch, consumers can add value to their homes. At the same time, it is quite important to note that the costs associated with maintaining a home cannot be considered to be home improvements and thus cannot be claimed as a tax deduction. If repairs made become extensive thus becoming a remodel, the work performed could potentially be considered a home improvement and eligible for tax deduction. Some locations also offer benefits for improving the energy efficiency of your home. Speak with your accountaint or tax planner in advance to make sure your project is classified correctly and you use the right kind of funding to qualify for any eligible deductions.
Home Accessibility Tax Credit
If you meet one of the following three criteria, the Home Accessibility Tax Credit could help you save taxes on an eligible renovation costing up to $10,000:
- You’re homeowner and you qualify for the disability tax credit
- You’re eligible to make a claim for a qualifying individual
- You’re over 65 years old
The renovations have to be permanent, make the home more accessible or reduce the potential harm to the qualifying individual, and be completed by qualified professional tradespeople.
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Downpayment Toward Equity Act Of 2021
- Status: Introduced to the House, awaiting a vote
- Originally Introduced: April 14, 2021
- Latest Action Taken: June 22, 2022 Hearings held by the Committee on Banking, Housing, and Urban Affairs.
The Downpayment Toward Equity Act, also known as the $25,000 First-Time Home Buyer Downpayment Grant, gives first-time buyers a cash grant up to $25,000 toward the purchase of a home. The bill states that cash can be applied to any purchase-related line-item including down payment, interest rate reduction, mortgage and real estate closing costs, and other general expenses.
The programs minimum eligibility standards include:
- Must be a first-time home buyer
- Must meet income and purchase price limitations
- Must be purchasing a primary residence second homes and rental homes are not allowed
- Must use a government-backed mortgage such as a conventional loan, FHA loan, or USDA loan
- Must have parents or legal guardians who have not owned a home in your lifetime unless they lost their home to foreclosure or short sale, or you lived in foster care at any point into your lifetime
Tax Deductions For Buying A House In 2022
If you choose to itemize your deductions, there are various ways you can lower your taxable income. Below weve spelled the most common deductions for homeowners, but whichever one you choose, be sure to read the fine print and properly fill out tax forms to determine whether you qualify for these deductions and how much you can deduct. Working with a qualified tax advisor is the best way to determine what deductions you might qualify for and how other tax benefits may apply to you.
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More Answers To Frequently Asked Questions
My loan has already closed and I just heard about the MCC. Can I still apply?
Once I have my MCC, how do I receive the tax credit?You will need to claim the credit each year when you file your taxes. Use IRS Form 8396 to claim your credit. If you have questions when completing your taxes, please consult a qualified tax professional. Idaho Housing is unable to provide tax advice.
If my income increases, will I lose the tax credit?The MCC is for the life of the loan as long the home remains your principal residence. If you sell your home or move and your income is higher, you may be held to a Recapture Tax by the IRS. A qualified tax professional will be able to answer your questions about potential recapture.
What happens if I sell the home or move?Depending on how long you have been in the home, you may be held to a Recapture Tax under certain circumstances. The Recapture Tax expires after nine years. If you are required to pay a Recapture Tax as a result of the MCC administered by Idaho Housing, please contact Idaho Housing because there may be an opportunity for reimbursement. Please refer to the application documents for specifics on potential recapture.
What is the Recapture Reimbursement Guarantee?If you are subject to a Recapture Tax, there are certain situations in which Idaho Housing will reimburse the Recapture Tax amount. Please contact Idaho Housing for information if you are subject to the tax.