What Every First Time Home Buyer Needs to Know About the IRS

study-girl-writing-notebook-159810This is part 1 of 4 of a new series called “The most important things consumers can benefit from my 15 years as a mortgage expert”

First time home buyers are a unique group of people.  There are many things in common such as dreams of owning, visualizing themselves taking care of a place they call home, talking with friends over lunch about their searches with a real estate agent, and the list goes on and on.

One thing that I have found that they don’t talk much about is finances or financing of the property to the most important people in their lives like their spouses and most importantly, their banker.

Through the lack of detailed conversations about financial goals, income, expenses and in the case of this article, IRS Taxes; with experienced bankers such as myself, most first time buyers are losing money like water through a strainer.  But the tap is not on trickle, it is on full blast!

Most first time buyers qualify for a tax credit from the IRS which is available IF you ask for it and sign the paperwork at or before closing.  It is not like the old tax credit where all you had to do is buy and then when tax season rolled around simply complete some paperwork and hand it into the IRS for $8,000.  This tax credit has the potential to be significantly more valuable, but the paperwork must be signed and delivered at closing. Let me repeat, this request must be signed with your banker before you own, no exceptions!!

The IRS is allowing first time buyers to receive up to $2,000 of credit toward Federal Income Taxes each year you own the home and occupy it, forever.  That means after only 4 years of owning, the potential of this credit can begin to exceed anything that the IRS has offered in past history.  Can you imagine that after ten years of owning your home you potentially could have received a total credit of $20,000!  There is not a single other advantage that the IRS has that is more valuable to the mass population in the United States than the little known current tax credit.

Shortly after the beginning of each year borrowers receive a statement from the servicing agent of the loan showing the total amount of interest that was paid over the calendar year.  The first time buyers that qualified and completed the INITIAL request form for a Mortgage Credit Certificate (MCC), will receive up to 50% of each dollar paid as a credit back toward their IRS Tax Bill.  (This is where you pause and go get your 2015 IRS Form 1040 and look at line 63 on p.2 to see how much you were charged in taxes)

The result of this credit directly and immediately reduces the charges from the IRS for Federal income taxes.  That is the easiest $2,000 that could be made each year, and just for owning a home with a mortgage on it!

But don’t ask for it AFTER the closing.  You are disqualified immediately after closing if you did not complete the request for MCC paperwork that your banker should have offered to you.  If your banker didn’t offer it to you, then you are also out of luck.  Maybe a little shopping would have been beneficial in that case because he could have just cost you tens of thousands of dollars.

There are some restrictions, but it is definitely worth investigating and discussing with bankers.

To learn more about the tax credit and if your situation would allow you to take advantage of it, sent me an email at craigmarkhardt@gmail.com.

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