4 Ways to Reduce Your 2015 Taxes by Purchasing a Home

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When the end of the year approaches, people start thinking about getting their taxes together. There are little things you can do to minimize the amount you pay, and then then there are much bigger things—such as buying a home. Realtor.com describes the end of the year as a Black Friday of sorts for homeowners, who thanks to a range of tax breaks associated with taking out a mortgage loan can save bundles. There’s no way to guarantee what tax credits will be available when next year comes around, so taking advantage of what’s there now is a great way to save money immediately. Here are three of the best year-end tax credits you can scoop up when buying a home.

Mortgage Interest Deduction. Perhaps the most well known of tax credits homeowners receive, the mortgage interest deduction is a way for homeowners to credit interest paid towards your mortgage on your taxes. By removing interest paid from your taxable income, you can greatly reduce the amount you need to pay to the government when tax season comes around.

Private Mortgage Insurance Deduction. Loans taken out with less than 20 percent down often require borrowers to pay mortgage insurance monthly to help minimize their lender’s risk. PMI is expensive at times, and for that reason the IRS offers a tax deduction on the amount you pay. Some experts argue that this deduction may be on its last legs, and could not be around by the time you’re assembling your 2016 taxes next year.

Energy tax credits. Buying a home with the intent of making it more energy efficient? There’s a deduction for that! In fact, there are two deductions, outlined by Realtor.com:

  1. If you make small improvements—such as installing new windows—you can claim a tax credit for 10% of your purchase cost, up to $500 total.
  2. If you go big, your tax credit can be bigger, thanks to the Residential Renewable Energy Tax Credit. This one gives you a tax credit for up to 30% of the cost of installing energy-saving systems such as solar panels, water heaters, geothermal heat pumps, and wind turbines—and there’s no upper limit.

All this plus the savings on your heating and electric bills that come from making green energy investments. Oh, and helping save the planet!

Buying points. If you’re looking to lower your interest rate, buying points is one way to do it. Points are a discount offered by mortgage lenders up front that bring your interest rate down. Points usually cost one-percent of the total loan—so, $1000 per point on a $100,000 loan—and they reduce your interest by between 1/4 and 3/8 percent. This doesn’t seem like a whole lot, but if you take into consideration how much interest costs in the long term they can add up to big savings if purchased wisely.

Currently, there is a great deal offered to people looking to buy points on their mortgage where “you can deduct both what you pay in interest and the cost of the points in the year you buy your home.” So not only are you paying a lower interest rate on your loan, but you’re also getting some money kicked back to you by the government on your deductions when you do!

Buying a home is a great financial decision for people who can afford one. In the long term, you reduce your cost of living and grow equity in an appreciating investment. There are also little perks that crop up yearly that sweeten the pot ever so much more, especially around tax time, and taking full advantage of your savings in this realm can greatly pad your bottom line in the new year.