Deducting the Full Amount of Mortgage Interest

There are several tax benefits to owning a mortgaged home. A homeowner should be aware of these special benefits and tax deductions. One of the biggest tax deductions that a homeowner can take advantage of is fully deducting their mortgage interest on their primary or secondary home.

In the year 1987, mortgage interest used to build, buy, or improve your home value up to $1,000,000, or home equity loans up to $100,000 became tax deductible. Thus, homeowners could write off thousands of dollars of tax benefits from their mortgage interest payment.

Points: The Second Tax Benefit of Homeownership

Points, also called discount points or origination fees, paid to obtain your home loan, or to reduce the amount of your interest rate, are fully deductible the first year. There is also an option that a homeowner can take advantage of to deduct this amount over the entire life of the loan. It is up to the homeowner to decide when and how to deduct the points paid.

If you have been deducting the points over the duration of your home loan, and it ends abruptly because of payment in full or refinancing, remember to deduct the reminder of the points over the life of your home loan. This is an important tax dedication that is often overlooked.

Deducting Property Taxes

Property taxes that are paid on the real estate you own are tax deductible. This type of deduction can be claimed on an Itemized Dedication form of your tax return. A homeowner can also deduct mortgage prepayment penalties, late payment charges and moving expenses.

Some real estate expenses that are not tax deductible include: mortgage insurance, hazard insurance, HOA fees, title fees, the principal part of your mortgage, inspection fee and appraisal fees.

The Benefits of Tax Free Profits

When homeowners sell their primary residence, they can exclude the entire profit gained up to $500,000. This is true for couples who file jointly. A single filer can exclude only half of this amount.

In order for a homeowner to qualify for this tax benefit, he or she must meet the use and ownership test. This means that you had to have lived at the property for two of the previous five years as your primary residence. This type of tax exemption can only be claimed once every two years. There are certain circumstances that can allow you to claim this exemption more often, such as declining health or a change in your place of employment.

These are the major tax benefits of home ownership. A homeowner benefits in several ways, both on their tax return and by building equity in their home. Real estate is a terrific investment, whether it is your first or second home.