Homebuyer Tax Credit Expires Today...But That's Okay

Homebuyer Tax Credit Expires Today...But That's Okay

The federal tax credit for first-time homebuyers is expiring today. But, really, who needs it? If you're still interested in owning property but missed out on the credit, know this: There are all sorts of other tax benefits to owning your own place. From green improvements to mortgage interest (no small potatoes!), you may find that owning is indeed cheaper than renting...$8,000 federal credit or not.

Tax Credit, Tax Schmedit.

Your mortgage interest is deductible, and for the first few years of your loan, most of your monthly payment will be, too. So, if your monthly payment is $1,600 each month, you may find yourself with a $1,500-per-month tax deduction, which translates to a lot of money in your pocket at the end of the year. Other things that are deductible: property taxes and points or upfront fees you pay to get a lower interest rate. Private mortgage insurance, which is usually about half of 1% of your total loan amount—and is required when you buy a home or condo and put less than 20% down—is also deductible. Most green energy improvements will qualify for rebates from Uncle Sam, too. This includes the addition of efficient water heaters, new windows, even geothermal heat pumps or fuel cell systems. For more information on these credits, see EnergyStar.gov.

Kind Of A Big Deal.

Mortgage interest is often the single item that makes people's itemized deductions higher than the IRS standard deduction. That means that homeownership allows you to write off things you've never been able to deduct before, like state income taxes, personal property tax, and charitable donations. Hypothetically, if you buy a $300,000 condo, you could see $17,000 in deductions from the mortgage interest alone. That's $6,000 more than the standard deduction for married couples and over $10,000 more than the deduction for singles.

Save Your Receipts.

If you make green improvements, save your receipts and Manufacturer's Certification Statement, which is a form proving that, say, the windows you installed qualify for the tax credit. File form 5695 with your taxes next year.

Similarly, if you get a mortgage interest statement from your lender at the end of the year (Form 1098), make sure to hang on to it. Most lenders will ask you to pay your property tax to them along with your monthly payment, and then they'll hold it for you and submit it to the city when the taxes come due. If your taxes are escrowed in this way, they'll show up on the same Form 1098 as everything else you send the bank. But, if your taxes aren't escrowed—meaning that you're paying your own property taxes—you'll need your own separate receipt.

Only you can decide whether buying or renting makes more financial sense for you, but remember to keep these deductions in mind when doing your calculations. If in doubt, check with an accountant or tax advisor. But, for the most part, these savings are more like Twinkies than milk—they don't expire.


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