By now everybody has heard of the First Time Home Buyer tax credit, and to take advantage of the $8,000, you have to meet the April 30th deadline. What the government is now saying that your second time is almost as good as the first!

Now anyone who has owned a principal residence home for five consecutive years is eligible for a $6,500 tax credit!

The same rules apply to the Repeat Home Buyers tax credit that apply to the First Time Home Buyers, meaning you must have a household income no more than $75,000 for singles, and no more than $150,000 for married couples filing a joint return.

Just to be clear, the government is considers the following to be acceptable principal residences:

• Single-Family Detached Homes
• Townhouses
• Condominiums
• Manufactured/Mobile Homes
• Houseboats

The tax credit will only be 10% of the purchase price of the home, to a maximum of $6,500. If you meet the requirements to get the tax credit, it’s a great way to help you get your first home! You better hurry though because the April 30th deadline is quickly approaching.

Good luck house hunting and enjoy that $8,000 or $6,500 tax credit!

Source: Federal Housing Tax Credit
Photo by: Spaunsglo // CC 2.0

Taxes, taxes taxes. They are just a pain in the rear to pay, especially in this economy. So why not pay as little as possible? Here’s a list of 18 deductions and credits that you can use to your benefit when filing your taxes:

Deductions:

These come in to play when you are calculating the amount of your income that is taxable. Deductions will ultimately lower the calculated tax amount you are to pay.

• Go to school.
You can deduct up to $4000 for tuition and expenses you pay for yourself, your spouse, or a dependent.

• Pay your mortgage.
You may deduct interest paid on your mortgage, as well as deduct any points.

• Use plastic.
If you paid your income tax by credit or debit card, you may deduct the convenience fee charged by the card processor.

• Compensate a burglary.
You may deduct casualties and losses due to theft that are not covered by your insurance.

• Buy things.
Sales tax that you pay on purchases may be deductable.

• Donate.
Charitable contributions, including merchandise, good, services, or monetary, may be eligible for deductions, especially larger donations.

• Pay your ex.
Alimony you pay to a former spouse can be deducted.

• Move for work.
If you had to relocate more than 50 miles for a job, you may be able to deduct the moving expenses.

• Gamble.
Gambling losses may be claimed as a deduction on your taxes.

• Work at home.
If you use a room in your home exclusively to operate a business you may qualify for deductions for a portion of your real estate taxes, mortgage interest, rent, utilities, insurance, and repairs.

• Buy a car.
If you buy a new car, light truck, motor home, or motorcycle, you may be eligible to deduct taxes and fees paid on the vehicle.

Credits:

Credits are subtracted from the tax amount that you will pay. These are taken into account after deductions have been applied and taxes have been calculated.

• Buy your first house.
The 2009 First Time Homebuyer Credit will credit back 10% of the home’s purchase price, for up to $8000. (expires December 1, 2009)

• Save for retirement.
Based on the contributions you make to your individual or employer-sponsored retirement plan, you can receive tax credits.

• Adopt a child.
In 2009, the maximum adoption credit increased to over $12000.

• Earn less.
If you have a low income, you may be eligible for a tax credit of up to almost $6000, especially if you have children.

• Have a job.
New for 2009 is the Making Work Pay credit, allowing you to receive 6.2% of your earned income or up to $400.

• Pay for care.
You may be eligible for the Child and Dependent Care Tax Credit if you rely on child care services in order to work.

• Go green.
The Residential Energy Property Credit provides you with a tax credit of up to $1500 when you make energy efficient improvements to their homes.

• Be a student.
The American Opportunity Credit can help you pay for you or your dependents’ first four years of college, to a maximum value of $2500 per student.

Photo by: lucyfrench123 // CC BY 2.0

I’ve been in the mortgage industry for over six years and one thing never ceases to amaze me: the minute I tell someone my profession, they always feel compelled to inform me of their “incredible rate” and how they “paid no points” when they obtained their financing.

Nine times out of ten I know right away:

• They are misinformed, since all companies have the same rates.
• They are not telling me their real rate (even though I didn’t ask).
• They shorted themselves out of an even better loan because they didn’t pay points.

I don’t know why American homeowners think paying points is so horrible. It’s one of the best things many homeowners can do for their mortgage and it makes a lot of financial sense. After all, points are nothing more than a bit of upfront interest.

For most places, prepayment penalties are a thing of the past. If a bank is going to lend you money at a very low rate, they want to make sure you have the intention of keeping that loan for a longer period of time, for it to make financial sense to them.

This initial deciding period is called Pull Through, and will last approximately 3-5 years. During this period, the bank will ask you to pay a little more up-front to show them that you are serious and are investing in this loan for more than just a few months. For paying slightly more than you would have otherwise, you are setting yourself up for a lifetime of savings.

Here is an example:

The Loan Company offers Borrower A a $140K loan at 5.5%, with no points on a 30-year fixed mortgage. Borrower B, who also has a $140K loan amount, chooses to roll in an additional $1,400 (or one point, equal to once percent of the loan) and buy his rate down to 5%.

Here is how both loans will look over time:

Total Upfront cost of Loan B: $1,400
Payment difference: $35.83 per month
Interest Difference: $1,892 over three years (or $52 per month)
Difference over ten ten years: $5,736
Difference over thirty years: $15,607

As you can see in the situation above, paying points can really pay off! If you believe that you will be in your home and your loan for a longer period of time, then invest in your rate and buy a couple of points. In a long-term situation, I would highly recommend points, but if you are going to be in your home or the loan itself for less than three years, inform your loan officer of this and don’t pay points or take a look at the FHA ARM.

One other item you should know is that points are tax deductible! If you buy a home, you can write off any discount points you pay during that year. If you refinance, you can write them off over a period of time, or you can write them off that same year if you bring in the cash at closing for the points.

Just remember, each loan and situation will be different, but for most borrowers, investing in a point or two in order to gain lifetime savings is a great idea, and really can help you leverage your largest asset.