The good news is that there are many tax advantages to home ownership. For the best advice and customized guidance for your individual situation, always consult a tax professional. For a quick summary, here are some of the most important tax write-offs that you can make this year:
1. Mortgage Interest
The largest tax break is found through deducting any interest paid on your mortgage. Each year, usually in January, your lender will send you a letter with a Form 1098, which outlines the total amount of interest you paid on your mortgage for the previous year. You are able to deduct this entire amount when filing your taxes.
If you purchased a home during the current tax year, make sure that the 1098 form includes any interest paid from the closing date to the end of the month. This amount can be found on your HUD Settlement Statement that you signed at closing.
This deduction can be limited if your mortgage is above $1,000,000.
2. Real Estate Taxes
Another large deduction is found in real estate and property taxes. Homeowners can deduct the total amount paid each year for property taxes on their home. This amount should be reported on your Form 1098 that you receive from your lender. If you do not have a mortgage and pay your tax bill directly, you will find that information on the current tax year’s bill or your receipt.
If you purchased a home during the current tax year, you may have reimbursed the seller for real estate taxes paid. If so, this amount is also deductible. You will find this amount on the HUD Settlement Statement.
3. Loan Points or Origination Fees
If you purchased a home during the current tax year and you paid any loan points or origination fees to the lender, you are able to deduct these charges when filing your taxes. These charges are fully deductible as long as the amount of cash you paid at closing (closing costs) equals or is greater than the amount being deducted. You are also able to deduct these charges even if your contract specified that the seller paid a portion of your closing costs.
For reference, this amount should be reported on your Form 1098.
4. Private Mortgage Insurance Premiums (PMI)
No one likes it…until tax time. Many people do not know that, for any mortgages issued in 2007 or later, homeowners can deduct PMI premiums. There are limitations to these deductions, which are based on adjusted gross income of the owner. For more detailed information, please consult with your tax professional.
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Tara Moore, PA
Tara Moore Real Estate