Tax season is upon us! Whether you already own a home or are looking to buy in the near future this is important information. For being a homeowner, there are many deductions you could receive when filing your taxes. Let’s check out a few:
- Mortgage Interest. When buying a home the interest payments can be pretty expensive but there is a silver lining to the situation. Interest that you pay on your mortgage is tax deductible, within limits. If you are married and filing jointly, you can deduct all your interest payments on a maximum of $1 million in mortgage debt secured by a first or second home.
- Points. There will be various fees when you first buy your home, one of which is called, “points.” One point is equal to 1% of the loan principal. One to three points are common on home loans, which can easily add up to thousands of dollars. You can fully deduct points associated with a home purchase mortgage. Refinanced mortgage points are also deductible, but only over the life of the loan, not all at once. Homeowners who refinance can immediately write off the balance of the old points and begin to amortize the new.
- Equity Loan Interest. You may be able to deduct some of the interest you pay on a home equity loan or a line of credit. However, the IRS places a limit on the amount of debt you can treat as “home equity” for this deduction. Your total is limited to the smaller of:
- $100,000 (or $50,00 for each member of a married couple if they file separately), or
- The total of your home’s fair market value – this is, what you’d get for your house on the open market – minus certain other outstanding debts against it.
- Mortgage Tax Credit. A home-buying program called mortgage credit certificate (MCC) allows low-income first-time homebuyers to benefit from a mortgage interest tax credit up to 20% of the mortgage interest payments made on a home (the amount of the credit varies by jurisdiction). The maximum credit is $2,000 per year if the certificate credit rate is over 20%. First you would apply to your state or local government for an actual certificate. This credit is available each year you keep the loan and live in the house purchased with the certificate. The credit is subtracted, dollar for dollar, from the income tax owed.
There are other deductions that may be a factor and can save you money, make sure you are doing all your research before filing your taxes, especially if you are a first time homebuyer. For more information on real estate tax laws, visit www.irs.gov.