Tax Deductions on Mortgage Payments
Buying a house is a sound financial decision all around. You’re investing in your future and with interest rates at an all time low, now is a great time to go from renting to home ownership. You may be unaware that one of the biggest benefits of buying a house is that in most cases a portion of your mortgage payment each month is tax deductible.
Here is How it Works
In most cases, the interest that you pay on your mortgage loan is entirely tax deductible. You pay more interest earlier on in the loan so you can count on this to help offset any tax liability.
In order to claim this deduction, you must itemize your deductions on your tax return. You should receive a notice from your lender so that you know exactly how much to deduct.
Your mortgage loan must be secured by your home and the money from the loan has to only have been used to purchase the home or materials to build or improve the primary residence (plus up to one additional home that is used for personal purposes)
If you took out the loan after October 14, 1987, you can only deduct the interest on the first $1 million of mortgage loans. If you have two homes, these limits are cumulative so you can still only deduct interest on the first $1 million.
If you have a rental property that you have a mortgage loan on, you can only deduct the interest if you use it as your residence for more than 15 days each year or more than 10% of the days that you rent out the property. Otherwise, you cannot deduct the mortgage interest for your rental property.
Mortgage points are also deductible in the year that you close on your home. Sometimes, instead of deducting them that year, you can deduct them over the course of the loan.
Property Taxes can also be deducted on your annual tax return. Over the course of the year, a portion of your payment goes into an “escrow” account. Money is held there to pay for things like homeowners insurance and property taxes. You can find out the amount that you paid in property taxes on your annual tax statement from your lender or you can simply make a phone call or check online.
Success Tax Relief: Helps You Maximize Your Deductions
Success Tax Relief is a full service tax company that helps clients with a wide variety of tax issues throughout the year. One question that we often are ask is about deductions –how to maximize them and whether certain things qualify. Our tax professional team can answer all of your questions about deductions, tax credits, audits, extensions, amendments and anything else that needs clarity.
We understand that the annual tax return process can be stressful and time consuming and we strive to take this burden off of our clients. Contact us here or give us a call at 1-877-825-1179 with your questions and let us help you — today!