Taxes and Your Home
There are many benefits to owning a home: gaining control over your environment, becoming part of a community, the opportunity to build equity, and of course, tax breaks. *
The Most Common Tax Deductions
There were once again rumblings that the mortgage interest deduction was going to be eliminated, but we’ve gotten a reprieve for yet another year. Why is this a great benefit? The government is giving you a credit just for paying interest on your home loan. You can even deduct interest paid on a loan secured by a second home or a home equity loan. Houses, condos, co-ops, mobile homes, and even some RVs or boats may qualify.
Points are a way of defining the cost you pay to the lender for your home loan. One point is one percent of the principal amount of the loan. Points on a purchase can be deducted in the year of the purchase, while points paid on a loan refinance are deducted over the life of the loan. That is, on a 30-year loan, you divide the points by 30 and then deduct that amount each year. Your home mortgage servicing company will send you a Form 1098 at the end of the year to let you know how much you paid in interest and in points during the year.
Note that if you have rental properties or more than two homes for personal use, you should consult an experienced tax advisor for more information on available deductions.
If you’re itemizing your federal return, you can deduct your property tax. These fees are also known as real estate tax, and they are based on the assessed value of the home. Property tax can be collected by local and state governments. It’s possible to challenge your property tax bill if you feel your assessment is too high; check your local laws and requirements to find out more.
Investment Properties and Taxes
There are a number of deductions associated with investment properties. In general, you can deduct interest on the mortgage loan with which you obtained the property, as well as the expenses associated with maintain the property, such as retaining a property manager and making necessary repairs. You can also get credit on depreciation of the property.
Owning a home is a benefit in so many ways, from establishing a sense of community and putting down roots for your family, to fostering your sense of independence, to easing some of the burden at tax time. If you have more questions about purchasing or refinancing your home, or if you need a referral to a qualified tax consultant, I’m happy to help. Call me today to learn more about making your mortgage work for you!
* I am not a qualified tax advisor. The information contained in this article is for informational purposes only and may not reflect current tax year rules and regulations. Consult your tax advisor or the IRS for current tax year rules, restrictions and regulations.