‘Tis the season…tax season, that is. Despite the drag that filing your taxes can bring, there are some deductible tax benefits that would behoove you to know about. Specifically, we’re talking about tax benefits for homeowners. The U.S. tax code is designed to attract homeowners by offering certain incentives to those whom qualify. If you’ve been on the fence about buying a home, keep the following in mind, and learn how to unlock the door to homeownership deductions this tax season.
Mortgage Interest Paid
When you buy a home using a monthly mortgage, you’ll also have to pay interest on the payment. For most homeowners, the monthly interest payment to a lender is tax-deductible, particularly in the early years of a loan due to the standard mortgage amortization schedule being front-loaded with mortgage interest. For loans less than $1 million, you can deduct this from your taxes!
Interest tax deductions don’t stop there—they also apply if you’ve used funds to refinance or taken out a home equity loan or line of credit for your home, too. But, these funds must be used for your property to count as a deduction (as opposed to using the loan to buy a non-residential boat).
Homeowners who paid points to receive a rate below current “market rates” on various home loans, including a home purchase or a refinance, also receive a tax break. Discount points paid for a home purchase are 100 percent deductible for the year in which they are paid. There are rules governing the discount points, so work with a professional to ensure you qualify and that any future loans meet these stipulations. Homeowners who paid points on a refinanced, home equity, or line of credit loan (must be for your home) can receive a tax break, but most times, the points have to be deducted over the life of the loan.
Other Valuable Deductions
Some other possible deductions you might qualify for include: property taxes, home improvements required for medical purposes, home-office tax deductions, eligible energy-efficient home improvements, up to $100,000 in home equity debt, and private mortgage insurance (PMI).
Work with a Professional
There are a number of tax deductions and special situations that could award you tax discounts. Since tax laws change frequently and each person’s financial situation is unique, we strongly recommend working with a licensed tax professional when preparing your taxes and setting your housing budgets to ensure accuracy and maximum tax benefits. Your REALTOR® will likely know a trusted tax professional in your area.