Save Money on Your First Home Purchase
Buying your first home is exciting, but did you know there are tax benefits that can help reduce your costs? First-time homebuyers can take advantage of tax credits, deductions, and savings programs to lower their tax bill and keep more money in their pocket.
If you’re purchasing a home in 2025, this guide will walk you through the best tax breaks available, who qualifies, and how to claim them.
1. First-Time Homebuyer Tax Credit (Coming Soon!)
📌 Expected in 2025 – A proposed First-Time Homebuyer Tax Credit could provide up to $15,000 in tax savings for eligible buyers.
🚀 What We Know So Far:
✔ The credit would be refundable (meaning you get it even if you owe no taxes).
✔ It may apply to first-time buyers and those who haven’t owned a home in 3+ years.
✔ Income limits and home price caps may apply.
💡 Tip: Check for updates in early 2025 to see if Congress approves this credit.
2. Mortgage Interest Deduction
📌 Biggest tax break for homeowners – Deducts interest paid on your mortgage from taxable income.
✅ Who Qualifies?
✔ Must have a mortgage on a primary or secondary home.
✔ Loan balance must be under $750,000 (or $1M if loan originated before 2018).
✔ You must itemize deductions instead of taking the standard deduction.
📌 Example Tax Savings:
- If you paid $10,000 in mortgage interest, and you’re in the 22% tax bracket, you save $2,200 on your taxes.
💡 Tip: If you don’t itemize deductions, you won’t benefit from this deduction—check with a tax professional.
3. First-Time Homebuyer IRA Withdrawal Exemption
📌 Use retirement savings for a home purchase—without penalties!
✅ Who Qualifies?
✔ Must be a first-time homebuyer (or not owned a home in the last 2 years).
✔ Can withdraw up to $10,000 penalty-free from a Traditional or Roth IRA.
✔ Funds must be used within 120 days of withdrawal for home purchase.
💡 Tip: If using a Roth IRA, withdrawals of contributions (not earnings) are completely tax-free.
4. Mortgage Points Deduction
📌 If you paid discount points to lower your mortgage rate, you may be able to deduct them.
✅ Who Qualifies?
✔ You must have paid mortgage discount points at closing.
✔ Loan must be for a primary residence.
✔ Points must be listed on the Closing Disclosure or Settlement Statement.
💡 Tip: If you purchased points, check your mortgage documents to ensure you’re claiming this deduction!
5. Property Tax Deduction
📌 Deduct state and local property taxes from your federal taxable income.
✅ Who Qualifies?
✔ Homeowners who itemize deductions.
✔ Maximum deduction: $10,000 (or $5,000 if married filing separately).
📌 Example: If you paid $7,000 in property taxes, this deduction reduces your taxable income by $7,000, saving you money.
💡 Tip: This deduction applies to primary and vacation homes, but NOT rental properties.
6. Home Office Deduction (For Self-Employed Homeowners)
📌 If you work from home, you can deduct home office expenses.
✅ Who Qualifies?
✔ Must use a dedicated space exclusively for business.
✔ Can deduct a percentage of mortgage, utilities, and repairs.
📌 Example Tax Savings:
- If your home office is 10% of your home’s total square footage, you can deduct 10% of your mortgage interest, property taxes, and utilities.
💡 Tip: This deduction is only for self-employed individuals—remote W-2 employees do NOT qualify.
7. Energy-Efficient Home Improvement Tax Credit (Up to $3,200!)
📌 Get rewarded for making your home energy-efficient!
✅ Who Qualifies?
✔ Homeowners who install energy-efficient windows, doors, insulation, or HVAC systems.
✔ Credit is worth 30% of improvement costs, up to $3,200 per year.
📌 Example: If you install solar panels costing $10,000, you can get a $3,000 tax credit.
💡 Tip: This credit is available every year through 2032—so consider making energy upgrades!
8. State & Local First-Time Homebuyer Programs
📌 Many states offer homebuyer grants, tax credits, and loan assistance programs.
✅ Popular Programs Include:
✔ State First-Time Homebuyer Tax Credits (Check your state tax agency).
✔ Down Payment Assistance Programs (DPA) – Grants or low-interest loans.
✔ Mortgage Credit Certificates (MCCs) – Provide tax credits on mortgage interest.
💡 Tip: Visit HUD.gov to find state & local first-time homebuyer programs.
9. Capital Gains Tax Exclusion (If You Sell Later!)
📌 When you sell your home, you may qualify to exclude up to $500,000 in capital gains from taxes.
✅ Who Qualifies?
✔ Must have lived in the home for at least 2 of the last 5 years.
✔ Can exclude up to $250,000 (single) or $500,000 (married) in gains.
📌 Example: If you bought a home for $300,000 and sell it later for $500,000, you may avoid paying taxes on the $200,000 profit.
💡 Tip: If you sell before living in the home for two years, you may still qualify for a partial exclusion due to job relocation or other circumstances.
10. Mortgage Insurance (PMI) Deduction
📌 If you pay private mortgage insurance (PMI), you may be able to deduct it.
✅ Who Qualifies?
✔ Mortgage must have been taken out after 2007.
✔ AGI must be under $100,000 (for full deduction).
💡 Tip: If your home equity reaches 20%, ask your lender to remove PMI to save money!
Maximize Your Tax Savings as a First-Time Homebuyer
📌 To take full advantage of tax breaks in 2025:
✔ Check if the First-Time Homebuyer Tax Credit is approved.
✔ Deduct mortgage interest, property taxes, and points.
✔ Use retirement funds penalty-free for a down payment.
✔ Consider energy-efficient upgrades to claim tax credits.
📌 Need expert tax help? Contact First Union Tax for personalized tax planning and homebuyer tax credit assistance!
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