Does owning your own Boise house have many benefits, including some fantastic tax deductions for home buyers? For one thing, you can do almost anything you want with it: paint it any color you choose, decorate it the way you want, knock down walls and add spaces. If you’ve been renting for a long time, that makes it very appealing to buy. But the financial advantages of owning your own home are also available. And the chief of these is the tax breaks-the tax deductions (though it becomes more difficult to do the taxes each year). So here’s a rundown of Boise tax deductions for home buyers.
Tax Deductions vs. Tax Credits
We need to make a distinction between tax deductions and tax incentives before we plunge into tax deductions for homebuyers in Boise.
A tax deduction decreases your adjusted gross income, the amount of income that dictates how much income tax you have to pay, which reduces your “tax liability.” So, if you are in the 24 percent tax bracket, your tax liability would be decreased by 24 percent of the overall claimed deduction to demonstrate tax deductions for homebuyers. You would expect your tax burden to decrease by around $400 if you seek a $2,000 deduction.
In the other hand, a tax credit is actually money deducted from the tax bill, acting just like a coupon. A $300 tax credit means, say, that the tax you owe goes down by $300.
Types of Tax Deductions for Home Buyers in Boise
The most important and most favorable tax deductions for Boise home buyers are as follows:
Homeowners are entitled to deduct all of their home mortgage interest (except in exceptional instances). There is a limit of $750,000, although it would apply to very few individuals. And you can also subtract late fees often, which makes this one of the beneficial homebuyer tax deductions.
Your lender will give you an IRS Form 1098 at the end of the tax year in January that indicates how much mortgage interest you paid during the previous year. This will be used by you to determine your deduction.
As a part of the closing deal, you can also claim interest charged. This information can be accessed from the settlement sheet. If you’re not sure what that is, please contact the agent to find out.
The deduction for property taxes is another of the major tax deductions, especially in a high-tax area for Boise homebuyers. “You can notice the sum on your 1098 form if you pay your taxes with a lender escrow account. If you pay directly to the municipality, you will have personal records in the form of a check or automatic transfer.”
And don’t forget that any prepaid property taxes you reimbursed the seller for may be included. Again, this is on the settlement sheet that you will find.
You could have charged the lender points, and these may be used as one of the homebuyers’ tax deductions. Usually, points are priced as a percentage of the overall loan. Each point costs you 1 percent of your house, or $2,750, if you paid $275,000 for your home. You get a deduction as long as you actually gave the lender money for these points.
PRIVATE MORTGAGE INSURANCE (PMI)
You will be entitled to subtract the premiums for private mortgage insurance as a new home buyer (that is, taking out a mortgage in 2007 or later) who paid down less than 20 percent. “Lenders charge PMI to borrowers who put down less than 20 percent. You are eligible for the deduction if you are single and your adjusted gross income is less than $50,000. Above $50,000, phases out of the deduction. The threshold is $100,000 if you’re married.
Is It Worth the Trouble?
Bear in mind that we said that taking these tax deductions for home buyers means you’re going to have to include them in your tax return. And that can turn into an enormous challenge and a great headache. So, before putting in all that effort, you need to determine if the deductions would surpass the standard deduction.
“Although tax deductions can add up to thousands of dollars for homeowners, claiming them is worth the hassle only if all the itemized deductions surpass the standard IRS deduction, which has been much greater since the 2017 Tax Cuts and Jobs Act came into force. For married couples filing jointly, the statutory deduction for the 2019 tax year is $24,400, $12,200 for single and married people filing separately, and $18,350 for unmarried household heads.”
Can Your Agent Help?
There are indeed substantial advantages to buying a home, not least of which are the tax benefits. Be mindful, however, that these aren’t all the deductions you can take, and the deductions can affect the home and its region. And so you don’t want to buy more than you can really afford, just to get a higher interest deduction. The best course is almost always to pay off your house as soon as possible.
A good agent will direct you through your buying decisions and the tax consequences (while not a financial adviser). For more information on homebuyer tax deductions in Boise, contact us at.