Tax Deductions for Homeowners
Among the most significant benefits of homeownership is tax savings. You do not want to pay more taxes than what you need to. Therefore, it’s essential to ensure that you remember all the relevant and allowable buying tax deductions. These are some of the crucial deductions to remember.
Mortgage Points
These are points that get paid out when you take a mortgage. The points are tax-deductible of used to lower your mortgage interest rate. In case you don’t know, a mortgage point is 1% of the total loan amount. For instance, if you have a mortgage of $200,000, a point would equate to $2,000.
Many people never want to pay points on a mortgage unless the expectation is to live in the house for some time to recover the cost of the points. Often, the cost of mortgage points gets recaptured in the form of lowered payments.
Mortgage or origination fees that you pay when buying a house are generally regarded as valid tax deductions for the entirety of the year that you pay them. Origination fees fro the lender, which constitute “service fees” are not tax-deductible.
Prorated Mortgage Interest
This is another crucial home-buying tax deduction. While purchasing a home, depending on the month that the deal is closed, you can either pay a large or small amount of prorated mortgage interest for that month. The amount can also be written off. The final settlement statement will indicate how much money the buyer should pay.
Prorated Property Taxes
At times, sellers pay Real Estate taxes to the local revenue office before closing. In exceptional circumstances, the buyer needs to pay a prorated portion of his/her taxes for the entire year at closing.
Construction Loan Interest
If the construction of a new home doesn’t last beyond two years before it becomes your primary residence, you can write off the interest accruing from the construction loan. Often, this real estate buying tax break gets overlooked by many people.
Mortgage Prepayment Penalties
It isn’t common to come across mortgages that have prepayment penalties. However, if your mortgage comes with a prepayment penalty and you complete all payments early, these penalties will be considered a tax-deductible. Therefore, it’s a tax break worth considering.
Mortgage Insurance
In case you received a loan between 2007 and 2009 and got the mortgage via FHA, RHA, or the Veterans Administration, you can deduct private mortgage insurance. Prepaid mortgage insurance premiums ought to get deducted during the period that they apply. Check out whether you’re eligible for this tax deduction.
There are many excellent tax deductions for home buyers. You need to remember them so that you can save money when buying your dream home.
