Homeowners get to enjoy a variety of tax breaks on housing costs, including mortgage interest payments, points, mortgage insurance premiums and real estate taxes. There aren't any specific tax deductions or tax credits available only to first-time homeowners. However, first-time homeowners can take penalty-free IRA distributions for their homes, and may qualify for state or federal funding to help complete the purchase.
Initial Purchase Tax Deductions
Most homeowners pay for inspections and a variety of closing costs when purchasing their first home. Most of these costs aren't deductible. However, mortgage interest, loan origination fees and any points purchased are deductible as itemized deductions. If you have to purchase mortgage insurance for the mortgage, those premiums also are deductible. Your lender will send you a Form 1098 at the end of the tax year detailing all your deductible payments.
Ongoing Tax Breaks
You can continue to deduct mortgage interest payments every year on Schedule A. You also can deduct any real estate taxes you pay to a state or local government. This won't be listed on your 1098, so keep a record of property tax payments you make. If you make energy efficient improvements to your home, like efficient skylights, insulation systems, air conditioning or heating units, you may also qualify for a federal tax credit.
The U.S. Department of Housing and Urban Development has specific criteria as to who qualifies as a first-time homeowner. You're a first-time homeowner if: You hadn't owned a residence during the three-year period ending on the date of the property purchase. You're a single parent or displaced homemaker and only owned a home when you were married. *The home you previously owned didn't comply with building codes or wasn't permanently fixed to a foundation.
Your spouse can separately qualify as a first-time homeowner. That means, if you owned a home but your spouse meets any of the above criteria, she can still be considered a first-time homeowner.
Benefits for First-Time Buyers
There aren't any specific tax deductions or credits that currently are available to first-time homeowners. However, there are some penalty relief and government assistance programs available. First-time buyers can withdraw up to $10,000 from an IRA and not pay the usual 10 percent penalty fee. Certain states, like Illinois, will help contribute to the down payment and closing costs incurred by first-time homeowners. Many regional nonprofit organizations receive funds from U.S. Housing and Development earmarked specifically for first-time homebuyers. Contact any local housing nonprofits for more information.
- Comstock Images/Stockbyte/Getty Images