New Tax Breaks for Homeowners

Date: Dec. 15th, 2008

New Tax Breaks for Homeowners

Whether you are a first-time buyer or have lived in your house for years, don't overlook these new tax breaks.

Recent tax law changes give homebuyers and homeowners new ways to save on their 2008 taxes.

First-time buyers who purchase a house any time from April 9, 2008, through June 30, 2009, may be able to claim a tax credit of 10% of the purchase price up to a maximum $7,500. And you don't have to rush to close the deal before December 31. You can claim the credit on your 2008 taxes even if you buy a home during the first half of 2009. (But you may want to file an extension that gives you until October 15, 2009, to complete your 2008 return.)

The tax credit is actually a tax-free loan that has to be paid back in equal installments over 15 years. If you move before then, the loan repayment is due in full. And to qualify for the credit you must meet income eligibility requirements. Eligibility phases out for individuals with incomes between $75,000 and $95,000 and for married couples with incomes between $150,000 and $170,000.

Another new tax break allows homeowners who do not itemize their deductions to take advantage of an extra standard deduction of up to $500 for individuals and up to $1,000 for married couples. The bonus standard deduction, which is available for 2008 and 2009, is designed to offset the real estate taxes that you would be able to deduct if you itemized. That might be the case if you bought a home late in the year and haven't paid enough mortgage interest and taxes to make itemizing worthwhile, or if you don’t itemize because your home mortgage is paid off.

Homeowners whose down payment represents less than 20% of their home's purchase price are required to pay private mortgage insurance premiums. If you made PMI payments in 2008 and your income is $50,000 or less ($100,000 or less if you are married), you may deduct 100% of your premiums as long as you bought or refinanced your home since Jan. 1, 2007.

Congress also extended for two years through 2009 a tax credit of up to $5,000 for first-time home buyers who purchase a residence in the District of Columbia.