Since we don't have any federal income tax withheld, are we eligible for a tax break when we buy a home?

Question

Currently, no federal income tax is withheld from my husband's paycheck. (We're a one paycheck family.) We are planning on buying our first home in the next little while. Everyone talks about the tax breaks. Will we get any tax break since all that is witheld on my husband's paycheck is Social Security and Medicare tax?

Answer 1

Tax withholdings from wages are applied against your tax liability when you file your taxes. If your income is such that you have no tax liability at the end of the year then it's possible (and legal) to have no taxes withheld during the year. But if your income is that low, there will be no tax benefit from home ownership for you since you have to have a tax liability in the first place to get a tax break of any kind.

On the other hand, if your husband is improperly under-withholding during the year you will have a tax liability (and probably penalties as well) that will be due on April 15th. In that case, home ownership COULD hold some tax benefit for you.

With mortgage interest rates as low as they currently are, many new homeowners are surprised to learn that their mortgage interest and property taxes are not high enough to make itemizing deductions worth while. The standard deduction is relatively high these days, 10,300 for married couples filing jointly, and many will pay less than that in interest and taxes on a home purchase especially if the home price is below around $150k.