A great benefit of home ownership is the tax advantages that come with it. Whether you’re a new homeowner, you refinanced this year or you simply need a tax refresher, here are a few deductions you don’t want to miss out on:
Interest on your mortgage, a second mortgage, a line of credit or a home equity loan is tax-deductible, with some limitations.
You can only write off interest for secured debt on homes you own. So, mortgage interest payments you make on your child or relative’s homes are ineligible.
How much mortgage interest you can write off depends on the amount of your mortgage. You’re clear to fully deduct interest if your mortgage is less than $1 million (or $500,000 if you’re married filing separately). And for home equity debt, you can fully deduct interest if the loan is less than $100,000 (or $50,000 if you’re married filing separately).
If you paid upfront fees known as discount points to decrease your interest rate before or at closing, you can write them off. Each point costs 1% of your mortgage principal and the IRS considers it prepaid interest.
You’re able to fully deduct points the year you pay for them if you meet the following conditions:
– You used the points to buy your main residence
– The use of points is a regular practice in the area where you live
– The number of points you bought is not higher than what’s typical for your area
– You didn’t borrow funds from your lender or broker to pay for points
– Your points are clearly stated on your settlement statement.
Points used to refinance are also tax-deductible, although not fully deductible the year you bought them. You have to deduct an equal part of the cost each year through the life of your loan.
According to the IRS, you can treat mortgage insurance premiums just like mortgage interest. But, like any other tax deduction, there’s fine print.
You can write off mortgage insurance premiums if you took the mortgage out after 2006 and your adjusted gross income is below $100,000. The deduction is less if your adjusted gross income is $100,000 to $109,000. You can’t write off insurance premiums at all if your adjusted gross income is over $109,000.
All homeowners are well aware of property tax; it’s a cost you can’t avoid. Thankfully, you can deduct property taxes you pay at settlement, closing or directly to a tax authority. Payments you make through an escrow account are tax-deductible as well.
Does your home have multiple uses? Take the time to scope out more deductions you may qualify for. If you have a home office you can deduct expenses for the space. If you’re a planned or accidental landlord, there are many property management related deductions. For example, you can deduct interest, repairs, depreciation and insurance on a rental property.
However, before taking any of the deductions above, you should consult with a tax professional since every situation is unique. And you don’t want to mess with the IRS. It’s better to seek advice before filing to avoid a surprise bill later.
Interested in learning more about your mortgage options or prequalifying for a home loan?