8 Great Tips to Save Yourself from the Clutches of Tax While Buying Homes

Even though food, shelter and clothing are supposed to be the three basic necessities of life; these are sadly getting costlier to afford with every passing day. Having a roof over your head is no more cost-effective in today’s world. If especially you are planning to buy a house, then you should be wise enough to plan your finance properly, so that nothing, in the long run, goes wrong.

At times, hasty decisions and wrong investment strategies might put you in trouble where you might end up paying huge taxes and higher mortgage payments per month. Here are 8 adept tips on how to reduce the cost and save tax while buying homes. You can also prepare the assignments on these topics. Go through this list before you venture out to make an investment.

1. Are you aware of the concept of point deduction?

Points are basically nothing but a fee which is paid to the lender by the borrower while signing a mortgage in order to reduce the rate of interest at the end of the day. It is said that an addition of 1 point on mortgage is equivalent to 1% of the total loan value. Points are beneficial for those who look for tax exemptions. If you are paying points as per the market trend and industry standard and the mortgage signed is specially for purchasing your first house, then you are entitled to enjoy a full point exemption instantly.

2. The concept of mortgage interest deduction saves taxes too

The mortgage interest deduction can help borrowers in reducing the rate of interest on loan amounts up to $500,000 for single tax filers. The loan amount gets raised up to $1 million for the joint tax filers. This is one major benefit that the buyers can enjoy, provided they are being aware of such facts and highlight the aspects to the lenders even if they are missing out on informing you about it. In addition to this benefit, joint filers can have their interest rate in home equity loan deducted up to $100,000.

3. Claim deduction if you are working from home

Isn’t it really interesting? You can actually save your taxes to some extent if you work from home. If you have a home-based business then a certain chunk of your expenses concerning electricity, internet and water can be managed and reduced as per the law. Now in the near future, if you are planning to buy a home and make it your business centre as well, then such exemptions on expenses can save your taxes to some significant extent.

4. You can have the mortgage interest deducted

All property taxes are generally paid on a quarterly basis. For instance, if you have paid your first quarterly tax for the year 2018 in the last month of 2017, then you can claim a deduction for that particular payment on your tax bill for the year 2017. However, make sure that you are claiming the deduction in the year when the payment was actually made.

5. The Private Mortgage Insurance Deduction

The Private Mortgage Insurance or the PMI is applicable for those who are unable to pay a 20% down payment during the time purchase. Talking of the PMI deduction; well, single tax filers belonging to the income bracket of $54,000 and less can claim the exemption. While on the other hand, the PMI deduction can also be claimed by joint tax filers belonging to the income bracket of $109,000 or below. Another interesting thing to be mentioned in this context is that for single tax filers below the income group of $50,000 and joint-tax filers below $100,000, the deduction rate gets eventually disengaged or inapplicable.

6. Invest in inexpensive homes and save money on property taxes

You can easily curb your expense and save money on property taxes by refraining from buying homes that are too expensive. Costlier homes come with higher maintenance cost, interest rates, and insurance costs. Thus, alongside ensuring a reduced property tax, buying an inexpensive house can actually help you save money on a lot of other essential things as discussed here.

7. Enroll yourself in the Mortgage Credit Certificate program for tax exemptions

The Internal Revenue Service or the IRS states that the mortgage credit certification program has been initiated for the people belonging to the lower income bracket. This particular program is said to benefit the first time homebuyers to get tax exemptions on the mortgage interest rate. On applying for this program, you will be able to receive a direct tax credit to your account. The amount to be credited would depend on the cost of the house purchased. One can expect to receive 20 to 30 percent of the interest amount paid each year on the mortgage. You need to apply for the program and be eligible for it. A Mortgage Credit Certificate will eventually be issued by your local or the state government.

8. Individual Retirement Accounts can help save your taxes too

You can use your IRA or the Individual Retirement Account to accumulate some funds and pay down payments or to meet other related expenses. If you are a first-time buyer who’s using the IRA for down payments, then the 10% penalty fee which is generally applicable for such withdrawals will be exempted as per the regulation.

Now that you are well aware of the different tricks and strategies that can be implemented in order to save your expense on taxes while buying a house, make good use of the knowledge and purchase your dream abode being calculative, organized and aware of all such latest updates.

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