So you didn’t buy a house last year. That’s OK—you haven’t missed the boat yet on lowmortgage rates or a healthy inventory of homes. In many ways, 2015 is a great time to buy a home, not the least of which is for certain tax breaks.
Here’s how you could enjoy three significant tax benefits if you purchase a home this year.
1. Use points for even lower interest rates
Deductible points are a standard tax break, but 2015 might be a good year to buy points. Interest rates have been at all-time lows, and many experts believe the only direction they can go is up. With 30-year rates hovering around 3.6%, an extra point or two can knock those low rates down even further.
One point typically lowers your interest rate by about 0.25%. (A point costs about 1% of your loan amount, and it’s paid at closing.) So if you buy two points off a 30-year fixed-rate mortgage of $350,000 with a 3.8% interest rate for $7,000, you could reduce your interest rate down to to 3.3%.
Points are considered a form of interest and are tax-deductible in the same year for first-home purchases as long as you meet a few standard requirements. So even if buying points doesn’t drop your monthly payments by much, you can still get a sizable tax break.
2. Take advantage of energy credits
If you buy a home in 2015, you may want to outfit it with some energy-saving systems—because you can write off 30% of the cost as part of the Residential Renewable Energy Tax Credit. Examples of eligible items include the following:
- Geothermal heat pumps
- Solar panels, solar water heaters
- Fuel cell property
- Wind turbines
With the exception of fuel cell property, which has a limit of $500 per kilowatt, there are no maximum credit limits for qualifying items.
The tax credit is good until the end of 2016. If the amount of your tax credit exceeds your tax liability—meaning if you can deduct more than you owe in taxes in 2015—you can roll the credit over to your 2016 taxes. (There’s no word yet on whether the credit will extend to 2017.)
3. Say ‘goodbye’ to renting (which offers no tax breaks)
If you don’t own a home, you most likely rent. And renting has gotten very expensive, with no signs of slowing down. According to the Wall Street Journal, rent has been rising for the past five years—specifically, by 15.2% since 2009.
Renters don’t get many tax breaks, but home buyers do. 2015 might be the year to call it quits on paying $1,800 for a studio apartment with nothing to show for it. Check out theRealtor.com app to see what’s available, and use our Rent or Buy calculator to see how long it will be before renting becomes more expensive than buying in your area—you might be surprised.
Note: Some tax breaks are in limbo
The following buyer-related credits will expire by the end of 2015 if Congress doesn’t act. Don’t count on them, but don’t count them out either.
- PMI deduction: This credit allows you to deduct money paid on private mortgage insurance.
- Energy upgrades: The Nonbusiness Energy Property Credit allots you a lifetime cumulative cap of $500 in deductions for energy-efficient upgrades (with a $200 lifetime cap for window upgrades).