“Tax Benefits for Homeowners” brought to you by Darin Bjerknes with Commonwealth Realty.
It’s getting close to tax time and I wanted to go over the tax benefits for homeowners and first-time buyers. To start off, I’m not an accountant so if you’d like to know how some of these deductions apply to you, make sure to contact your tax professional.
First, I’m going to give you a summary of the tax deductions because I know I may lose most of you with all of the tax jargon. Taxes just aren’t that interesting, unless you’re an accountant 🙂
The 5 most common tax deductions for homeowners are: 1. Mortgage Interest Paid, 2. Discount Points & Origination fees, 3. Property taxes, 4. Home Offices, 5. Private Mortgage Insurance or PMI. If you want to learn a bit more keep watching.
#1 The most common Tax Deduction for Homeowners is:
Mortgage Interest Paid – The interest you pay to your lender is tax deductible and is a great way to reduce your tax burden. Mortgage interest tax deductions are extended to second mortgages as well. Interest paid on a refinance loan, home equity loans, and home equity lines of credit are also tax-deductible. There are some restrictions here, so make sure to check with your accountant. Homeowners can deduct up to $1 million dollars of mortgage interest.
#2 Discount Points and Origination Fees are also tax deductible when they are in connection with a home purchase or refinance. Discount points are fees that allow you to buy down your interest rate, therefore lowering your monthly payment. One discount point costs 1% of borrower’s loan amount. When discount points are paid in conjunction with a purchase, the cost may be deducted in full in the year in which they were paid, dollar-for-dollar. With respect to a refinance, discount points are not fully tax-deductible in the year in which they are paid.
With a refinance, discount points are typically amortized over the life of the loan.
The term “origination fees” refers to any expenses you pay to the lender to compensate him or her for providing the loan. Most lenders charge a basic origination fee equal to a certain percentage of the loan balance.
#3. Property Taxes. Homeowners typically pay real estate taxes to local and state entities. These property taxes can often be deducted in the year in which they are paid. If your mortgage lender currently escrows your taxes and insurance, it will send an annual statement to you which you can file with your complete federal tax returns. Your accountant can help determine the payment’s tax deductibility.
#4. Home Offices. Homeowners who work from their residence can typically deduct the expenses of maintaining a qualified home office. Allowable tax deductions for a home office include renovations to the room(s), telephone lines, and the cost of heat and electric. You can typically deduct your office sq.ft. from the rest of your home. Before claiming a home office on your returns, though, be sure to speak with an accountant to understand the benefits and liabilities.
#5. Private Mortgage Interest or PMI. This is something you typically pay for if you don’t make 20% down payment when you purchase. The PMI is a policy that is taken out by the homebuyer to protect the lender against possible default on the mortgage loan. You may be eligible to claim the deduction for PMI on your tax return. However, if your adjusted gross income is over $100,000 you may not be able to deduct it. A side not on the PMI Deduction, as of right now this will be going away starting in 2016. Again talk to you tax professional. 🙂
If you purchased a home this past year, make sure to give your accountant the settlement statement you received at closing. He or she will be able to determine what you can deduct from the purchase.
As with the PMI deduction going away, Homeowner tax deductions are continuously changing. It’s always a great idea to ask your accountant to see what deductions apply to you and your situation.