Get Ready for the Tax Deductions! The IRS is nice to homeowners, no kidding. Here are some of the tax breaks available.
• Purchase Costs Deduction. In most cases, any loan discount points and origination fees are tax deductible for the buyer, no matter who pays for them. Any “daily interest” paid on the mortgage at closing is also deductible. Keep your HUD settlement statement, which contains all this information, to use in preparing your return.
• Mortgage Interest Deduction. Each year the interest paid on your mortgage is tax deductible up to $1 million in mortgage debt on a first or second home, if you’re married filing jointly. In certain cases, if the lender requires you to buy PMI (private mortgage insurance), that may be tax deductible for mortgages written from 2007 through 2010, with certain income limits.
• Property Tax Deduction. All real estate taxes are fully deductible.
• Home Office Expense Deduction. If your business requires you to use a portion of your home exclusively for those purposes, you may be able to deduct the percentage of your home costs related to that portion. Go to www.irs.gov and consult with a tax professional on this one.
• Home Equity Loan Interest Deduction. The interest you pay on a home equity loan or line of credit may be deductible, up to certain limits specified by the IRS. This is limited to loan amounts less than $100,000. You can refinance your entire mortgage into a cash out mortgage and deduct the entire interest paid during the course of the tax year.
• Home Improvement Loan Interest Deduction. If you take out a loan for a big home improvement, you can deduct the interest with no dollar limit. But the work must be a “capital improvement,” not just ordinary repairs. Check with www.irs.gov and a tax professional for the improvements that qualify.
• Capital Gains Exclusion. Married taxpayers who file jointly can keep, tax free, up to $500,000 in profit on the sale of a home used as a principal residence two out of the prior five years. Single and married filing separately can keep up to $250,000 each tax free.
• Mortgage Insurance Deduction. The premiums you pay for mortgage insurance may be deductible up to certain income limit specified by the IRS.
• Selling Costs Deduction. If you do wind up with a capital gain above the exclusion (lucky you!), you can reduce it by the amount of your selling costs, including broker’s commissions, title insurance, and legal fees, among others. You can also deduct decorating and repairs you do to make the home more saleable.
ALL TAX MATTERS SHOULD BE REVIEWED WITH A TAX PROFESSIONAL.
But if I can help with any questions about home financing or re-financing, please call or comment on this post…and best wishes in this and all your endeavors!