About Tax Deductions for Homeowners
As a homeowner, you can take advantage of many different itemized deductions, and you may receive a tax benefit for these deductions depending on your entire tax situation. Mortgage interest and real-estate taxes are common deductions for homeowners. Many of the tax benefits of homeownership also apply to a second home as well.
Standard and Itemized Deductions
While homeowners are eligible for many tax deductions, most of these depend on itemizing your deductions on your tax return. A married person filing a joint return is allowed to take a standard deduction from income of $11,900 as of 2012 without showing any record of expenses. The only tax savings of homeownership will be to the extent that your homeowner-deductible expenses exceed the standard deduction amount. For example, if including your homeowner's expenses only gives you $11,800 in itemized deductions, you will save nothing on your taxes by being a homeowner.
You can deduct the interest on up to $1 million of mortgage interest as of publication. If your mortgage balance is higher, the IRS will limit your deduction. The amount of mortgage interest you pay will be reported on Form 1098, which your lender will mail to you after the end of the year.
Real Estate Taxes
Real estate taxes you pay on your home are deductible as an itemized deduction. The taxes must be based on the value of your home and assessed uniformly throughout your city or town. Special assessments for improvements such as street repairs in your neighborhood or other fees for services are not deductible.
If you pay points, or pre-paid interest on your mortgage loan, this money is deductible with some conditions. Points paid when purchasing your home are deductible in the year that you pay them, and your lender will report them to you on Form 1098. If you refinance your home and pay points to refinance, the points are deductible, but over the remaining term of your mortgage.
Home Equity Loans
If you borrow money secured by your home, such as with a home equity loan, the interest on this loan is tax-deductible with some limits. Interest on equity debt under $100,000 is deductible, but the equity debt, combined with your first mortgage, cannot exceed the value of the home.
Mortgage interest on a second home also is tax deductible. The second home can even be a boat or RV, as long as the second home has cooking, bathroom and sleeping facilities. Your second-home deduction may be limited depending on the size of the mortgage on your first home.
Craig Woodman began writing professionally in 2007. Woodman's articles have been published in "Professional Distributor" magazine and in various online publications. He has written extensively on automotive issues, business, personal finance and recreational vehicles. Woodman is pursuing a Bachelor of Science in finance through online education.