Tax Benefits of Homeownership | Part 1
Being a homeowner does have its advantages!
Tax Season starts January 23 – Don’t miss out on these top four deductions for homeowners! Whether you recently bought the home of your dreams, downsized, a current homeowner with a mortgage, refinanced your mortgage or you took out a second mortgage – you may qualify for one or more of the following tax deductions.
Did you have a mortgage, refinance your mortgage, or take out a second mortgage in 2016?
If you did, you may be able to write off the interest you paid for the year up $1,000,000 ($500,000 if you use married filing separately) if the property was your primary or secondary residence for that year and was secured by that residence. Most homeowners with a mortgage will claim this deduction on their taxes as it tends to pay off most in the first years that you own a home and most of your payment goes toward the interest.
(Source: www.IRS.Gov)
Did you have a home equity loan in 2016?
If you took out a home equity loan or line of credit, your interest payments may be tax deductible. It’s easy to overlook, but a home equity loan or line of credit is just like the primary home loan you used to fund the purchase of your home. The advantage of this is that the Federal Tax Law allows you to deduct the interest you paid up to $100,000 in home equity debt ($50,000 if you are married and filing separately) if you are not subject to the Alternative Minimum Tax (AMT). There are certain limitations though, so it’s advisable to always check with your tax advisor to determine your own eligibility.
(Source: http://www.foxbusiness.com)
Did you pay points to secure a better rate on your home loan?
Most homeowners overlook another home loan tax break – the deduction for points paid to get their home loans. In some cases, the points also could cut tax bills for people who refinanced or got a home equity loan or line of credit. Points are prepaid interest and may be deductible as home mortgage Each point is 1% of the loan amount. Lenders charge points as a way to make a profit, and borrowers generally pay points in exchange for lower mortgage rates. You can deduct the points in full in the year you pay them, if you meet all of the following requirements:
- The loan is secured by your primary residence.
- Paying points is an established business practice in the area where the loan was made.
- The points paid were not more than the amount generally charged in that area.
- You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.
- The points paid were not for items that are usually listed separately on the settlement sheet such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes.
- The funds you provided at or before closing, including any points the seller paid, were at least as much as the points charged. You can’t have borrowed the funds from your lender or mortgage broker in order to pay the points.
- You use your loan to buy or build your main home.
- The points were computed as a percentage of the principal amount of the mortgage, and
- The amount of points charged is clearly reflected on the settlement statement as such.
You can also fully deduct (in the year paid) points paid on a loan to improve your main home if you meet tests one through six above. Points that do not meet these requirements may be deducted ratably over the life of the loan. You can deduct points paid for refinancing generally only over the life of the new mortgage. However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six requirements stated above, you can fully deduct the part of the points related to the improvement in the year that you paid them with your own funds. You can deduct the rest of the points over the life of the loan. Check with your tax advisor to determine your own eligibility or visit www.IRS.Gov for more information about this deduction.
(Source: www.IRS.Gov)
Do you have state and local property taxes?
If you do, you may be able to deduct your state and local property taxes, as long as you are not subject to the AMT. Your portion of the first year’s tax payments may be divided between you and the seller for the time which you owned the home.
(Source: www.IRS.Gov)
