penalty, so be sure to plan ahead. Depleting your retirement savings is risky, as it might be more cost-effective to keep the money earning interest rather than applying it to your down payment. Speak to a financial advisor for help with your specific situation.
OTHER HOMEOWNER TAX BREAKS: REAKS:
• The Mortgage Interest Deduction. This is one of the most beneficial tax breaks that home buyers can take advantage of, whether they are first-time buyers or otherwise. The IRS allows you to deduct the interest you pay your lender from your taxable income. Home mortgage interest is one of the largest deductions for those who itemize. Lenders report your mortgage interest on a 1098 form sent out annually. The Mortgage Interest Deduction (MID) is valid for mortgage debt up to $750,000 or mortgage debt up to $375,000 if you are married but filing separately. Home buyers can receive a large benefit in the first years after buying, as the first repayments have the highest interest. To claim the MID benefit, home buyers will have to file an itemized tax return, so definitely discuss what is best for you with a CPA or qualified tax professional. • Mortgage Points. Discount points (also known as mortgage points) are fees paid directly to the lender at closing in exchange for a reduced interest rate. The cost of discount points is equivalent to 1% of your mortgage ($1,000 for every $100,000). Discount points involve prepaid interest and can reduce your total mortgage payment. The interest rate on your mortgage typically lowers by 0.25% with each point you buy. If you elect to do this, the fee for the points is tax deductible for the year
73
Powered by FlippingBook