One financial benefit of having a home mortgage is being able to take advantage of certain mortgage-related tax deductions. Depending on whether you take the standard deduction or itemize your deductions, you may be able to lower your overall income tax burden by reducing your taxable income further with mortgage-related deductions. If you itemize your deductions, including these mortgage-related tax breaks, you forgo the standard deduction. If you are considering taking advantage of these tax deductions for homeowners, you should make sure the total amount of itemized deductions is larger than the standard deduction for your filing status. Additionally, you should consult with a tax professional if you have any questions.
Let’s take a look at the different tax breaks available for homeowners including, mortgage interest, private mortgage insurance, and property taxes (up to a certain limit) from your taxable income. There also may be additional tax deductions you can take in the year that you purchased or refinanced your home based on your closing costs.
Mortgage Points Tax Deductions
When you are going through the mortgage approval or refinancing process, you may have the option to purchase discount points (or mortgage points) to lower the interest rate on your mortgage. With this option, one discount point equals 1% of the mortgage amount. The purpose of these mortgage points is to reduce your interest rate over the life of your loan. If you purchase these points, you can typically deduct the cost of the discount points on your taxes.
Mortgage Interest Tax Deductions
In the year that you close on your home or refinance your mortgage, you will typically have a prepaid mortgage interest amount on your closing statement. The prepaid interest as well as the total interest you paid to your lender throughout the year (over $600) will be disclosed to you on IRS Form 1098 Mortgage Interest form. Your mortgage lender will mail you this form annually and you can deduct the interest paid upon the first $750,000 of your qualified personal residence mortgage.
Property Tax Deductions
Local and state real estate or property taxes can be deducted in the year that you pay them. However, this deduction is limited to $10,000 for property, sales, state, and local taxes annually. Additionally, if this is your primary residence, you should consider filing for a homestead exemption which may reduce your property taxes.
For over 90 years, the expert staff at Standard Mortgage (NMLS#: 44912) have been helping homebuyers purchase and refinance their homes.