Congress passed Tax Reform Legislation last year, that changed in some ways the mortgage Tax Deductions that are allowed. For me, any tax reform that is an actual reduction in my taxes is a good thing. I would much rather control the expenditure of my own income than trust the federal or state government to do. So any tax cut is welcomed, providing it actually does reduce my taxes. Will the new “laws” create Tax Benefits for First Time Home Owners? It really depends on how you file, so here are some details that might help you answer that question.
Tax Benefits for First Time Home Owners
There’s not ONE tax benefit for buying a home, there’s a whole bucket of them! The Tax Benefits for First Time Home Owners include the Mortgage Credit Certificate (for those who qualify), but you M-U-S-T apply for this PRIOR to closing on your loan. This can not be overstated. I can’t tell you how many people come to us after closing, with another lender, wanting to know how to get this benefit that they were strongly qualified to get. YOU MUST DO THIS WITH YOUR MORTGAGE LOAN.
Mortgage Interest Deduction
The way most of us see a Mortgage Interest Deduction is through an Itemized Form A. Your mortgage payment, especially in the first 10 years, is primarily interest, and you can deduct that, with other expenses on Form A. This deduction does not go away for those of us buying a home with a loan under $750,000. Tax Benefits for First Time Home Owners will be a little different, as the standard deduction has gone up. You will need to have more than $24,000 for a couple in Itemized deductions to use the Mortgage Interest Deduction.
The exception to the Mortgage Interest deduction is that Interest on home equity loans can no longer be deducted unless the funds are used for significant home improvements.
Property Tax Deductions
Before the Tax Reform changes in 2017, home owners could also deduct any state and local property taxes to help reduce your tax liability. The new law limits this deduction to $10,000 for individuals, which still amounts to great Tax Benefits for First Time Home Owners ( I hope your taxes aren’t $1000 a month as a first time home buyer! Yikes!! We normally see taxes run about $220 a month for a $250,000 home in Cary).
Closing Cost Deductions
When you buy a house, there are costs associated with closing the loan. You can deduct the origination fees and points associated with getting a mortgage, even if the Seller pays for it. Our Company takes all of the fees associated with the mortgage, and charges it as a lump sum origination fee. We do this so that you can “write off” the origination fee on your taxes for that year.
The NC Housing Finance Agency allows approved Lenders to offer the Mortgage Credit Certificate (MCC). The spirit of this Federal Tax Credit, is for you to bring home up to $2000 a year by reducing your tax liability (literally you change your W4 with holding), and use that money to help with the cost of homeownership. This is one of the Tax Benefits for First Time Home Owners that lasts for the life of the mortgage.
Under the program, we can give buyers more than $160 a month in qualifying power. If you were purchasing a home for $250,000 with a FHA mortgage, 3.5 down payment… and at an Interest Rate of 4.0% (or 4.45 APR) the P&I would be $1151.76. With the MCC credit, for Qualifying purposes, we could reduce that to $985.76. That’s Huge!
According to the NCHFA, “Qualified buyers can claim a federal credit for 30 percent of the interest for an existing home or 50 percent on a new construction home. The new tax law preserves the mortgage credit certificate, so North Carolinians can continue to qualify for this tax-saving certificate.”
AGAIN: The Tax Benefits for First Time Home Owners include the Mortgage Credit Certificate, but you M-U-S-T apply for this PRIOR to closing on your loan. If you are a First Time Home Buyer, and you are working with a Lender who has not talked to you about it, call us 919 649 5058.
Home Sellers Get a Tax Break, Too
There was concern that current owners would now need to live in their house for at least 5 out of the last 8 years to claim the exclusion of gain on sale of a principal home. Under the former tax framework, a typical owner, who has lived in their house for at least 2 years out of the last 5 years, would pay nothing in capital gain taxes if they sell the house. No change. The new code will remain the same as the old.
According to the National Association of Realtors, NC will have a small impact from the Tax Reform. “Of the approximately 2,493,000 owner-occupied houses in North Carolina in 2016, 63% had a mortgage. 7.2% of the housing units with a mortgage had a value higher than $500,000 while 0.9% of the owners paid over $10,000 for real estate taxes. Vacation homes accounted for 4.7% of the housing units in North Carolina.”
If you are considering a home purchase, and you need more information about any of the Tax Benefits for First Time Home Owners, please call Steve and Eleanor Thorne 919 649 5058.