Home Ownership Comes With Tax Breaks

Your house can provide you with more than just shelter. It can provide you with some significant tax breaks if you itemize deductions. Learn more about the most common tax deductions your home can deliver.

MORTGAGE INTEREST

To be deductible, mortgage interest can be for your first and second home. However, only interest on $750,000 of indebtedness is deductible if your mortgage was taken out after December 15, 2017. There are similar limitations on older debt and if you rent your home out, there are use requirements that you must meet in order to deduct the interest.

MORTGAGE POINTS

You can pay “points” to lower your monthly mortgage payments. However, points are complicated, affect your taxes and too often, homeowners do not recoup their upfront investment. If you refinance, pay off or sell your home before you reach the break-even point, you will not regain your money. A good lender can help guide your decision.

MORTGAGE INSURANCE

For borrowers who pay mortgage insurance as part of their mortgage, the good news is that it can be deductible if the mortgage was obtained after 2006. And this deduction begins to phase out for adjusted gross incomes above $50,000 for single filers.

PROPERTY TAXES

Most homeowners who itemize deductions will be able to deduct property taxes paid to their state and local governments. But the maximum amount of property taxes that are deductible is $10,000. The taxes must have been due and paid by the end of the year to be deductible. So, unfortunately, any prepaid taxes will be deductible in the year it was due, not paid.

Real Mortgage Costs

Well-qualified borrowers may be able to get some very low mortgage rates on both purchases and refinance transactions. But the interest rate is only one of the factors to consider before you sign:

PRIVATE MORTGAGE INSURANCE

If your down payment is less than 20%, you may have to pay private mortgage insurance. This will add thousands of dollars to the cost of the loan.

FIXED VS. ADJUSTABLE

When interest rates go up your adjustable payment will increase accordingly. Fixed mortgage payments remain steady.

CLOSING COSTS

Fees are inevitable. In some cases, the seller may be willing to cover some or all of these costs.

INSURANCE

You’ll need to cover homeowner’s insurance. And depending on location, you may also have flood, hurricane/windstorm, or earthquake insurance premiums.