Homeowner Tax Breaks
Homeowner Tax Breaks
Tax breaks for homeowners were instituted back in 1920 and remain an excellent benefit of owning your own home today. Whether you own a town home, condo, multi-plex, or single family home you may be able to take advantage of these tax breaks. You should consult with your tax accountant for the full details on qualifications, but here is a simple overview of deductible expenses.
Deduct the Interest
For most homeowners, interest paid on your mortgage is deductible dollar for dollar up to a certain dollar limit. Also depending on your adjusted gross income you may fall into a higher category. Allowable deductions are reduced by a certain percentage. (see your tax accountant).
If you assume additional debt to improve your principal residence you can usually take an itemized deduction on the interest paid for up to $1 million. You can usually deduct the interest on a home equity line of credit up to $100,000 on your principal residence.
Each year you should receive a “Form 1098” from your lender which details how much mortgage interest you paid. To claim the deduction you need to complete “schedule A” under itemized deductions to record your interest deduction. Home mortgage interest deductions can also include late payment charges and pre-payment penalties. The only requirement is that they were not for a specific service received in connection with your home loan.
Deduct the Property Tax
You can deduct the real estate property taxes for the amount of time you lived in the home in a given year. For example if you bought the home in September, you can deduct the property tax for September – December of that year.
Deduct the Points
If you paid any points on your first mortgage, you can deduct them even if they were paid by the seller. The only issue is exactly when you get to claim it. If you paid points on a purchase you will be able to deduct that year. If you refinanced your home and paid points, most likely you may deduct the points over the life of the loan. If you paid points to refinance because of home improvements, you may be able to deduct the cost of those points that year.
Points paid on a loan for a second home or vacation home will have to be deducted over the life of the loan.