The Tax Advantages of Your Home Loan or Refinance
Owning a home, whether it's a mobile home, single-family residence, townhouse, or condo, has many advantages --including tax perks! What's more, you may still reap the benefits even after you sell!
However, to take full advantage of tax perks of homeownership, your tax filing will likely get complicated. In other words, you may have to itemize to detail your tax-deductible expenses.
Still, others might find that claiming the standard deduction is best. Talk to your tax expert to accurately assess your situation, however, use this brief guide to get an idea of the tax advantages that could be in your future as a homeowner!
Your most significant break comes from your monthly mortgage payment because, in many situations, most of the amount goes toward the PMI and the interest you pay is deductible. Your interest tax breaks aren't limited to your first mortgage either! If you refinanced, received a home equity loan or line of credit, you may be able to deduct that as well!
Call our office for more details on home equity and deductibles.
Own multiple properties? The mortgage interest on your second home may also be a deductible. Even if your second property rented for part of the year, you can still take advantage of the mortgage interest tax deduction --as long as you spend some time there too. Talk to your tax preparer for precise details of the tax perks allowed on second properties.
Did you pay points for a lower interest rate? There's a tax break for that too. The main issue has to do with when you are eligible to claim it. Claiming the amount you paid toward points requires meeting specific requirements based on the year you paid for the points and what the home loan was used for. Points from a refinance may also be eligible for a tax break, but in most cases, this is deducted over the life of the loan.
For example, if you paid $2,000 in points to refinance your home loan for 30 years, you'll be able to deduct $5.56 per monthly mortgage payment for a total of $66.72 for the 12 months worth of payments. Generally, the same rules apply to home equity loans.
A portion of your monthly mortgage goes toward the taxes, which is stored in an escrow account to pay your property taxes yearly. The amount set aside for property taxes will be listed on your annual statement from your lender, along with your mortgage interest information. These taxes can be a deduction for you for as long as you own your home.
There are many more tax advantages to owning property --many more than can be listed in this article.