For many people today, owning a home is still the American dream. But for a good portion of them, that dream remains just out of reach owing to the large down payment and the monthly mortgage payments. For a lot of these people, though, that dream actually is attainable. The significant tax breaks for homeowners, especially new homeowners, make it possible. So don’t give up on your dream. Instead, consider these top 5 deductions for new homeowners in Newark.
1. Mortgage Interest
One of the top deductions for new homeowners (and all homeowners really) remains the deduction for mortgage interest. Although the cap on this deduction has been reduced, it’s still one of the biggest tax breaks for owning a home. And for new homeowners, who’ve paid little on the principle and pay mostly interest, it’s probably the biggest.
Homeowners, when itemizing, can deduct mortgage interest up to $750,000. This deduction can also include interest paid from the date of closing to the end of the month in which you closed.
2. Mortgage Insurance Premiums
Another of the deductions for new homeowners in Newark is the deduction for private mortgage insurance. Most lenders require buyers who pay less than 20% down to purchase private mortgage insurance to cover their risk. Many new homeowners can’t afford to pay 20%, so this is a deduction they need to take advantage of.
There are a couple of things to be aware of, though, This deduction applies only to mortgages issued in 2007 or after. Also, it phases out when your adjusted gross income exceeds a certain amount.
Also among the deductions for new homeowners in Newark is the one for “points.” These points are expressed as a percentage of the mortgage loan amount.
The points are deductible as interest if:
- The loan is secured by the home
- The amount of points paid is typical for the area
- The cash paid at closing via the down payment equals the points
4. Property Taxes
Property taxes are also among the deductions for new homeowners, especially if paid directly to the municipality. There are, though, a couple of points to be aware of concerning property tax deductions:
- Beginning in 2018, the allowable amount of deductions for state and local taxes (which includes property taxes) is capped at $10,000 per tax year.
- You can’t deduct payments into your escrow account as property taxes because this is money set aside for future tax payments.
5. Penalty-Free IRA Payouts
While not strictly one of the deductions for new homeowners in Newark, this is a great way for them to avoid paying withdrawal penalties as new homeowners. And the end result is the same.
Typically, withdrawals from your401(k) before age 59.5 for, say, the down payment are subject to a 10% penalty. But such withdrawals from IRAs are not subject to the 10% penalty for first-time homebuyers who dip into their IRA for a down payment.
You can, at any age, withdraw up to $10,000 from your IRA – penalty free – in order to build or buy a first home for yourself, spouse, parents, children, or grandchildren. There are a couple of qualifications, though:
- The $10,000 limit is a lifetime cap, not an annual one. (But if you’re married, both you and your spouse can make the $10,000 penalty-free withdrawal.)
- The money withdrawn must be used to build or buy a first home within 120 days of the withdrawal.
There are, then, some pretty significant deductions for new homeowners. So not only is homeownership a good investment, but it can save you money in the form of these deductions. If you’re ready to reap the financial benefits of these deductions for new homeowners in Newark, contact us today at (848) 299-4847.