- About Tax Deductions for Homeowners
- Can I Claim it on My Return if My Parents Bought Me a Home and I Pay the Mortgage & Taxes?
- Tax Deduction on Mortgage Down Payments
- Can I Deduct My Property Insurance on My Federal Income Tax?
- What Deductions Can You Claim When Buying a Home?
- Do You Get All Your Interest on Your Mortgage Back on Taxes?
During the year, you probably don't look forward to paying the mortgage each month. However, when it comes time to file your taxes, you tax refund will be larger as a result of the mortgage and its associated tax deductions. Claiming any of the deductions requires you to itemize, so you can only claim them if you give up the standard deduction.
You can deduct the interest on up to $1 million of your mortgage debt. For example, if you have a $2 million mortgage, you could deduct half the interest. If you're married but you file a separate return, each spouse is limited to deducting interest on up to $500,000 of mortgage debt. At the end of the year, your lender delivers a Form 1098 that shows you how much interest you paid.
If you pay discount points when you take out your mortgage, the IRS treats that money as prepaid interest and allows you to claim a tax deduction. If the mortgage is on your main home, the points are standard for your area, the points do not replace other expenses that are usual items, such as attorney's fees, the points are figured as a percentage of the mortgage and the fees are clearly shown on the settlement statement, you can deduct the points in the year you pay them. Otherwise, you have to spread them over the life of the loan.
If you've got a mortgage, you own your home and likely have to pay property taxes each year. To be deductible, the taxes must be charged uniformly against all the property in the jurisdiction based on the value of the home. Your mortgage lender might require that you pay money into an escrow account to go toward paying your real estate taxes. If so, you can only deduct the money actually used to pay real estate taxes during the year. For example, if you pay $1,000 to the escrow account in December but only $800 is used to pay taxes that year, you can only deduct $800.
Home Equity Debt
If you later decide either to refinance for more than you owe or take out a home equity loan, you can deduct the interest on the additional debt secured by your loan. However, the limits are much lower: you can only deduct the interest on the first $100,000 ($50,000 if married filing separately) of home equity debt. If you use the proceeds of the cash-out refinance or home equity loan for home improvements, that debt is treated as home mortgage debt rather than home equity debt.
Mortgage insurance costs are generally charged when you don't pay at least 20 percent as a down payment. As of publication time, this tax deduction has expired, but it could be renewed in time for mortgage holders to continue to deduct the cost. Under the old rules, the mortgage had to be taken out after 2007 and your income had to fall under the annual limits. If you prepaid mortgage insurance premiums, you have to deduct them over the longer of 84 months or the life of the mortgage.
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