With six weeks left in 2013, year-end home buying tax benefits still offer opportunity for consumers who are in the market for buying a home. Here are six tips for buying a home before 2014 that can have advantages if you have the ability to close before December 31, 2013. Important disclaimer: consult your tax attorney or accountant to see which benefits will apply to you, or feel free to contact me Devin Jones, Peoples Mortgage Loan Officer, with any questions.
Mortgage interest deduction
If you itemize your tax return (which you should do if your itemized deductions are greater than the standard deduction), then you can deduct the interest payments made during 2013 on your mortgage. Interest is deductible on the first one million dollars of debt. Keep in mind however that if you purchase at the end of the year, your deduction won’t be as large as it will be in 2013, since you’ll only have a month or two of mortgage interest payments which apply.
Mortgage insurance premium
If your down payment is less than 20% and requires private mortgage insurance (PMI), the interest on those payments may be eligible for a deduction. This deduction only applies if your adjusted gross income is less than $100,000. If your income exceeds $100,000, 10% of the PMI deduction is reduced for every $1,000 over the adjusted gross income limit. This means that the tax deduction completely phases out at $109,000.
If you decide to pay points on your loan (typically 1% of the loan for each point) it is fully deductible in the year it is paid. This can be a significant deduction on homes with loans over $500,000. Even though there are typically fewer inventories at the end of the year, many homeowners are more motivated to sell in order to take advantage of these end-of-year tax breaks. Low rates, a still-recovering market and seller motivation make it a great time to buy a home for those who can still pull the trigger.
Low interest rates
For those in a position to buy a home, interest rates are still low and buying now ensures against future rates potentially increasing or current deductions being eliminated.
Down payment funding
When considering where to get down payment cash, stocks and mutual funds may be the answer. Cashing those out before the end of the year is key, as capital gains taxes may rise in 2014.
Fast forward: the 2014 industry forecast
If buying a home before the end of the year is not in the cards for you, the 2014 housing outlook will still offer some exciting opportunities. The real estate industry, already seeing national improvement from 2012, anticipates that recovery will continue, albeit at different levels in different regions of the country.
Although home values decreased across the board when the housing market collapsed, certain regions may face a longer road to full recovery, so there’s still time for buyers to get a good deal. However inventories are down in many markets, which drive up home values. Until there are a larger number of homes available on the market these values should remain fairly consistent. As the housing market continues to improve and gain strength it will cost buyers a little more but that’s just another incentive for buyers to find their dream home now!
If you have any more questions, feel free to contact me, Devin Jones, Peoples Mortgage Loan Officer.
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