Buying your first home can be equal parts exciting and intimidating. You are achieving a monumental goal but also making a major investment that will impact your finances. In addition to how much money you pay for the transaction and monthly payments, homeownership can affect how much you pay in taxes. Before you make any major decisions, here is what you need to know.
Will You Pay a Sales Tax?
You know that sticker shock you receive at the dealership when they add sales tax to a vehicle purchase? Fortunately, you won’t see that with a home purchase. And, in most cases, you won’t have to pay a federal capital gains tax when you sell your home as long as you keep it for at least two years.
Real Estate Transfer Taxes
One purchase-related tax that you are likely to see is called the real estate transfer tax. When a piece of property changes hands, many states, counties, and municipalities have the option of levying a tax. You might also see this referred to as a “stamp” or documentary tax.
In South Carolina, the combined state and county transfer tax is 0.37%. For a $250,000 home, the transfer tax would be $925. In many cases, the seller pays this tax, but this could be part of your negotiated deal.
South Carolina Property Taxes
When you own a home anywhere in South Carolina, you’re going to pay property taxes. The amount will vary based on the assessed value and location of the home. But, South Carolina has some of the lowest property taxes in the country. The average county tax is 0.5%, which would equal $1,250 per year for a $250,000 home.
Home Tax Deductions
The good news is that home buyers can qualify for various tax deductions, which can lower your overall tax burden. To get these, however, you’ll need to itemize your deductions.
A few examples of home tax deductions include the mortgage interest deduction and the state and local property tax deduction. The mortgage interest deduction is available if your home is your principal or other qualified residence. You can also deduct up to $10,000 in state and local taxes (SALT), including your property taxes.
As a first-time home buyer, you may pay “points” on your mortgage, which are additional fees charged by the lender. The IRS allows you to deduct these points on your taxes. Finally, you may also be eligible for a mortgage interest credit if you meet certain qualifications.
State and Local Tax Breaks
South Carolina’s overall tax rate is lower than most other states. The state has a favorable structure that even excludes homeowners from paying school operations taxes.
If you are a first-time home buyer or a buyer that hasn’t owned a home in the past three years, you can qualify for the Mortgage Credit Certificate (MCC). This is administered by the South Carolina Housing Finance Development Authority and allows you to deduct up to 50% of your mortgage interest each year, up to $2,000.
Are You a First-Time Home Buyer? Contact Us Today
The Lafayette Team in Lexington, SC, specializes in helping first-time home buyers and buyers looking to level up to their next properties. We have intimate knowledge of the homes available around Lake Murray as well as Columbia, Chapin, Irmo, Elgin, Blythewood, Lexington, and the surrounding area. Our team has also established strong relationships with developers and builders throughout the region.
Contact us today to learn how we can put our experience and resources to work in your new home search.