Home Ownership Tax Deductions

 


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Mortgage interest is probably the most important for homeowners and many home owners may be already be aware of this important tax benefit. Homeowners can deduct the interest payment for their first or second home loan as long as it isn’t over the fair market value of the home. If you’re married filing separately it can’t exceed $500,000 for single returns and $1 million for joint filers. You’ll be limited with home equity loans of $100,000 or more with married couples and $50,000 for single filers. Late charges and prepayment penalty fees can be deducted with the interest.

The refinancing epidemic reached its peak some time ago but you still may be able to purchase points that will lower your rate and make refinancing worthwhile. You can write off the purchase of points for a lower rate on a new loan. Many homeowners miss out on this important opportunity to deduct unclaimed points from a previous refinancing the same year.

Points have to be deducted “proportionally” over the life of the loan. If the terms of your new loan are for 15 or 30 years you deduct 1/15th or 1/30th of your points every year. The points you purchased for the previous loan are paid off with the new loan and can be written off completely. You continue to make the proportional deductions for the new term of the loan.

Interest paid for home equity loans or lines of credit work very much the same way. Homeowners can deduct the interest paid on either, up to $100,000. They only run into problems when the home equity loan exceeds more than what the home is worth. If your first mortgage is for a $160,000 and you take a home equity loan of $35,000 for a property valued at $180,000 you can only deduct interest on $20,000, the real value of the property.

Taxable and non-taxable gains are in an area most homeowners aren’t familiar. If there is uncertainty a tax advisor should be sought. In fact, it is always advisable to consult with your tax advisor before making any significant changes. Capital gains deductions are an issue in more active markets and faster growing markets with great appreciation.

Every two years home owners can profit from the sale of their home and not have to worry about capital gains for up to $250,000 for single homeowners and up to $500,000 on profits from the sale of a home as a couple. The cost of home improvements can’t be directly deducted from taxes but the value added can be written off at the time of sale. Costs associated with improving and maintaining a home office or health related improvements may also be deducted as well as indirect costs of maintaining them.

Real estate property taxes are deductible. State and local property taxes can be deducted for the year they are paid. Your mortgage interest statement should list the taxes and homeowners’ insurance placed in escrow. If you can’t find this information you can contact your local city and court offices. In most cases homeowners can deduct the mortgage interest paid in the tax year from their income.

Buying a home has not become a guarantee for a better life, but for tax purposes, home ownership gives the owner more options and benefits than renting. There is no “golden rule “that will determine deductions. Any tax professional will tell you there are many variables that will influence the amount of interest you pay. A good tax professional or loan officer will be able to give you a good idea of what tax benefits to take advantage of to make your choice of homeownership the clear advantage that it should be. No matter what type of scenario you face, homeownership is more affordable than ever and over the long run the investment can prove much more rewarding.

Some additional advice resources:
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