Owning a home provides you with many tax breaks or benefits including the following:
The interest you pay on your mortgage is tax deductible within limits. For those married filing jointly, this limit is $1 million of mortgage debt. For married filing separately the limit is split in half. A tax deduction can also be taken on a second residence as long as you vacation at the residence at least 14 days, or more than 10% of the number of days that you rent the property out, whichever is longer.
If you paid “points” to your mortgage lender to get a better rate on your home loan you are eligible for a tax break. Points taken on home loans can quickly add up to thousands of dollars. Points associated with a home purchase mortgage can be fully deducted. Points taken on a refinanced mortgage are also deductible, but over the life of the loan, not all at one time.
Equity Loan Interest
You may also deduct some of the interest you pay on a home equity loan. To qualify the mortgage must have totaled $100,000 or less for married filing jointly ($50,000 or less for married filing separately) and totaled no more than the fair market value of your home minus certain other outstanding debts against it. Read more about home mortgage interest deduction in the IRS Publication 936.
City or state property taxes are fully deductible on your tax return. These taxes will be an annual deduction for as long as you own your home. If you have an escrow account please note that you cannot deduct escrow money held for property taxes until the money is actually used to pay the tax. Property taxes have to be deducted on Schedule A as an itemized expense.
When you decide to sell your home you are able to reduce your taxable capital gain by the amount of your selling costs. Home selling costs include real estate agent commissions, title insurance, advertising costs, legal fees, escrow fees, inspection fees and administrative costs. All these costs can be deducted from your gain.
To receive all of these homeowners tax deductions you will need to itemize your deductions meaning you will need to fill out Form 1040 and Schedule A. Tax Pros Plus is here to help as your taxes become more complicated. We can help you save the most money. Stop by our office today or give us a call at (800) 742-0TAX.