If you have decided to become a homeowner in 2010, then consider
doing it as early in the year as possible, because delay has another drawback in addition to the risk of losing out on the first-time buyer credit.

For every day that passes after January 1, you will find it harder to take full advantage of the tax benefits during your first year of ownership.  This results from the way the federal income tax system (and most state income tax systems that piggyback on the federal law) works for those who itemize deductions. 

Buying a home is typically what turns short-form 1040A and 1040EZ filers (who take the standard deduction) into long-form 1040 itemizers.  To get the benefit of deductions for home mortgage interest and property taxes, two of the largest deductible items for most tax filers, you must first exceed the standard deduction.  For 2010, the standard deduction will be $11,400 for married persons, $5,700 for singles and $8,400 for single heads of household. 

Deductible items that are typical and common to both homeowners and renters include state and local income taxes, personal property taxes and charitable contributions.   Together, these items are rarely enough for taxpayers to itemize.   However, adding mortgage interest and real estate taxes usually raises the total itemized deductions above the standard deduction level, making it advantageous to itemize.  

Unfortunately, many first-time buyers still wind up taking the standard deduction during their first year.  If you purchase late in the year, your mortgage interest and real estate taxes may be insufficient to make you an itemizer.  As a result, you essentially lose the tax benefits of homeownership during the first year, whether for just a few weeks
or a few months. 

However, if you purchase a home early in January, you will get nearly a full year’s worth of mortgage interest and property tax deductions and should have no trouble exceeding the standard deduction and, thus, maximizing your tax benefits.  Don’t think that just because there is a first-time homebuyer credit that will wipe out your tax liability, you shouldn’t do as much as you can to minimize your tax tab before applying the credit. 

Because the credit is refundable, lowering your tax bill as much as possible will mean getting an even bigger check from the government! © 2009, Real Estate Information Services, Capitol Assets, Choice Real Estate, Inc.

BJ Matson, 240-281-6732
Montgomery County Realtor®
choicerealestate.net contributing writer