Deductible Homeowners Expenses
One of the advantages of owning your own home is that the home mortgage interest & real estate taxes paid can be deducted from your federal income tax*. To do so, youll need to comply with current tax laws & complete the appropriate federal tax forms & itemized deduction schedules.
Home Mortgage Interest
For your home mortgage interest to be deductible, it must be for a first or second mortgage, a home improvement loan or a home equity loan. Additionally -
- The mortgage must be secured by your 1st or 2nd home
- Only interest paid for that tax year can be deducted
The amount you can deduct can be limited if your mortgage balance is more than $1 million ($500,000 if married filing separately) or the mortgage was taken out for reasons other than to buy, build or improve your home.
As of 2007, legislation was passed to allow homeowners to deduct mortgage insurance premiums paid during the year. Your mortgage company can provide you with a statement to be given to your CPA or filed with you taxes. Up until 2007, Mortgage Insurance was NOT tax deductible.
Points (aka loan origination points or discount points) can be deducted if you PURCHASED the property. Please show your accountant your closing statement. If you refinancing then origination or discount points must be deducted over the term of the loan. But if you pay off the loan before the end of the term your the remainder of your deduction will be taken in the yea you satisfied the mortgage. Don't forget that.
Real Estate Taxes
State or local real estate taxes can be deducted from your income if they are paid in the tax year. To qualify, the tax must be levied on the propertys assessed value, the taxing authority must charge a uniform rate for properties in its jurisdiction, & the tax must not be for your special privilege but for the benefit of the general welfare.
Check with the IRS
Publication 530: (Click) Tax Info First Time Homebuyers
*The information contained in this article is for informational purposes only & may not reflect current tax year rules and regulations. Follow the link above to view information distributed by the IRS concerning homeowner deductions.
Many of the expenses related to owning your own home cannot be deducted from your income tax. These non-deductible items can include (but not limited to):
- Most settlement costs, including appraisal fees, VA funding fees, & mortgage preparation costs
- Home Insurance
- Local assessments that generally add value to your home, such as sidewalks, sewers, etc.
- Domestic help
For updated information about your home deductions, please contact your CPA or accountant. If you need assistance, we can direct you to a number of qualified CPA's to assist you.