Home Mortgage Blog
4 Major Tax Benefits for Homeowners
Homeownership has many benefits, one of which is the valuable tax deductions that come each spring. Although they may require a little extra work, claiming these deductions can create significant savings. So if you bought a home this year, or are considering becoming a homeowner in 2017, here are some deductions you should know about.
1. Mortgage interest
One of the most important tax breaks for homeowners is based on mortgage interest. Every month when you make a house payment, a portion of what you are paying is most likely interest due on the loan amount. Generally, as long as your home loan is less than $1 million dollars, all of that interest paid is tax deductible.
Do you own a second home? If you spend some time at the property (at least 14 days, or more than 10% of the number of days that you rent it out–whichever is longer) it is likely that any interest paid on the loan is deductible.
Also, if you took out extra money through a refinance or home equity line of credit, you may be eligible for other deductions. Most equity debts of $100,000 or less are fully deductible.
Another big year-end deduction for homeowners comes in the form of taxes. Sometimes a significant portion of most monthly mortgage payments goes to taxes. You should see the sum of taxes paid each year on your annual statement from your lender. Under current tax laws, those taxes are deductible every year that you own the home.
If you bought your home in 2016, review your closing documents for more tax payment numbers. When you purchased the home, the year’s tax payments were probably divided according to the length of time that each party owned the home. Your portion of the taxes paid that year is deductible.
Important note: tax professionals advise that property taxes must be deducted as an itemized expense on Schedule A.
3. Mortgage Points
If you paid points to get a better mortgage rate, you may be eligible for a tax break on that as well. They are generally eligible as a deduction for the year that you paid them if they meet certain qualifications. Examples of such qualifications would be: if the loan is for your primary residence and if the number of points is in the usual range etc. Be sure that your mortgage meets the necessary requirements and ask your tax professional if these deductions may be right for you.
With a home equity line of credit, the points are generally deductible in the year the loan is taken out if the money is used to improve the residence.
If you paid points on a refinanced loan, more often than not, such points need to be deducted over the life of the loan.
4. Proceeds From A Sale
In the past, to remain untaxed, proceeds from the sale of a home had to be used to buy another house. That law was changed in 1997 so that $250,000 ($500,000 if married and filing jointly) is tax-free as long as certain criteria are met, such as the home belonged to the owner for two years and they lived in it for two of the five years before the sale.
Disclaimer: The above information was sourced from Bankrate.com. Marketplace Home Mortgage L.L.C. is not licensed to provide tax advice. Talk to your tax professional to find out if these deductions are applicable to you. (Source: http://www.bankrate.com/finance/taxes/home-sweet-homeowner-tax-breaks-1.aspx#ixzz4UAz5tdRx).
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