Potential Tax Deductions for Homeowners
It’s that time of year again. For NFL fans, the good stuff is just getting started- it’s time for the NFL playoffs. Up until now, the regular season was about winning one game at a time to ultimately get to the number of wins needed to earn a playoff spot, at least a wild-card.
In the playoffs, it’s one-and-done. You lose, you go home.
For homeowners, they can also lose if they don’t take advantage of all the potential tax deductions owning real estate provides. Note, it’s important to work with your financial planner or tax adviser when preparing your income tax returns, but here is a basic list of items that may be eligible for a tax deduction for those who itemize.
Mortgage Interest. The income tax deduction that packs a punch is the ability to deduct interest paid on a mortgage loan from taxable income. As a homeowner makes a mortgage payment each month, a portion is applied to the outstanding loan balance and some toward interest due the lender.
Your lender will send your interest statement to you using the IRS form 1098. You can deduct interest on your primary residence loan as well as interest on a second or vacation home. If you have a home equity line of credit or a home equity loan, the interest with these loans is also eligible for the deduction on loans up to $100,000.
Property taxes. No one likes to pay taxes but at least with property taxes paid on your home you can deduct those taxes from your taxable income. If you impound each month for taxes, your lender will send you a statement that your taxes were paid and how much. You’ll use this for tax purposes.
Monthly payments going forward to fund an impound account for property taxes are not tax deductible. You’re not able to deduct the taxes your lender paid in addition to the amounts paid toward the impound account.
Discount points. Did you pay a discount point or two to lower the interest rate on the mortgage you got to finance your purchase? Points are tax deductible as long as a lower rate was the result and deductible in the year paid. If you paid a point to refinance your mortgage, you can deduct the point over the life of the loan, not in the year paid.
Energy efficiency credit. If you made any qualifying energy efficiency improvements to your home over the past year, there may be a tax credit waiting. Note, this is a credit which effectively reduces your tax bill by the amount of the improvement and not a deduction which lowers your taxable income.
Mortgage insurance. If you pay monthly mortgage insurance, you may be eligible to deduct these payments from taxable income as well. The amount of the deduction decreases when your adjusted gross income exceeds $100,000.