Tax Benefits of Owning a Home
Deducting mortgage interest
In most cases, you can fully deduct your mortgage interest secured by your primary
or secondary home. Beginning in 1987, mortgage interest to buy, build, or improve
your home (acquisition debt) up to $1,000,000 or home equity loans up to $100,000
became tax deductible.
Points (also known as origination fees or discount points)
Generally, points paid to obtain a loan on your home or to reduce the interest rate
can be fully deducted in the first year. You also have an option to deduct this
amount over the life of the loan.
Points paid to refinance a mortgage are generally not fully deductible in the year
you pay them. However, if you use a portion of refinanced loan proceeds to improve
your primary home, you can fully deduct the part of points related to the improvement
in the year paid. The reminder of the points can be deducted over the life of the
loan.
If you have been deducting your points over the life of your mortgage and it ends
due to a payment in full or refinancing, do not forget to deduct the remaining amount
of points in the year the mortgage ends.
Property taxes
Property taxes paid on real estate that your own are also tax deductible.
These deductions can be claimed on Schedule A (Itemized deductions) of your tax
return.
- You can also deduct late payment charges, mortgage prepayment penalty and moving
expenses.
- Some expenses that are not tax deductible are: HOA fees, title, mortgage or hazard
insurance, the principle part of your mortgage, or appraisal and inspection fees.
Tax-free profits
When you sell your primary residence, you can exclude the entire gain up to $500,000
for couples who file jointly or up to $250,000 for single filers. In order to qualify,
you have to meet the ownership and use test (you must have lived there for at least
two of the previous five years as your primary residence). You can only claim this
exemption once every two years. Extenuating circumstances such as health, change
in place of employment or a qualified unforeseen occurrence may allow you to claim
a partial exemption if this period is less than two years.
Please consult your tax, legal, or investment advisor when making financial decisions.
For additional information please visit http://www.irs.gov/pub/irs-pdf/p936.pdf.
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