Tax Deductions for Homeowners
Tax season can be stressful and hectic, especially if you anticipate owing the federal or state government money. But if you're a homeowner, you might be eligible for tax deductions that reduce your taxable income. Tax deductions for homeowners can put extra cash in your pocket.
When you reduce your taxable income, you owe less to the government or receive a bigger refund. So if you’re looking to maximize your return, here are three tax breaks every homeowner should know about.
1. Mortgage interest deduction
Some homeowners pay thousands of dollars in mortgage interest every year. This money goes directly to the mortgage lender, and it's their fee for lending funds. The idea of paying interest over 30 years might leave a bad taste in your mouth. But you may be eligible to take advantage of a home mortgage interest deduction. If so, you can deduct the interest you pay annually on home loans up $500,000 or $1 million, depending on whether you file a joint or an individual tax return.
You have to itemize your return to claim this deduction. Talk with your tax preparer to see if you’ll benefit from this deduction. The home mortgage interest deduction only makes sense when the amount you pay in interest exceeds your standard deduction.
As a bonus, if you get a home equity loan, the mortgage interest paid on these loans is also deductible.
2. Mortgage points deduction
If you apply for a new home loan and pay points to receive a lower interest rate, you can also deduct the cost of points on your tax return. Look at your settlement disclosure statement to see if you paid mortgage points. To benefit from this deduction, your mortgage loan must be for $1 million or less. For a home purchase, you can deduct the full cost of points. If refinancing a mortgage, you’ll spread the deduction for mortgage points over the life of the loan.
3. Property tax deduction
If you itemize your tax return, you can also write off property taxes paid during the tax year. This applies to property taxes paid at settlement on a new purchase, as well as property taxes paid on a monthly basis with your home loan payment.
Buying a home is expensive, but tax breaks can ease the cost. For more information on allowable deductions as a homeowner, contact an accountant or a tax preparer.