Top 10 Income Tax Deductions
for Home Ownership
1.
Mortgage Loan Fees
Pre-paid interest,
such as Discount Points, Loan Fee or Origination Fee, are all
tax deductible. Pre-paid interest to obtain a mortgage is also
tax deductible as itemized interest for the tax year. Up to $1
million is deductible, even if you obtain the mortgage up to 90
days after taking title.
TIP
One (1) Discount, Origination, or Loan Fee Point equals one percent
of the amount borrowed. For each Discount Point, Origination Fee
or Loan Fee paid of pre-paid interest, the interest rate is usually
reduced by 1/8 of a percent. 1 Point paid = 1/8 percent rate decrease.
2.
Refinanced Mortgage Loan Fees Deducted Over Life of Loan
Pre-paid interest paid
to refinance a mortgage is not fully deducted in the year paid,
deductions are taken over the loan life.
TIP
When refinancing an existing mortgage, a no cost mortgage with no
Loan Fees, Origination or Discount Points is advised to reduce closing
costs, even though the lender charges a slightly higher interest
rate. All interest paid for a no cost mortgage and a mortgage with
pre-paid interest loan for refinancing a home are deducted over
the life of the loan and there is little benefit to pre-paying the
interest.
3. Interest Deductible
on Your Home Loan
Homeowner are able
to deduct up to $1 million of annual interest paid on a mortgage
loan. Interest paid on a second mortgage is tax deductible annually
up to $100,000.
4. When Land Rent
Payments Qualify as Interest Deductions
Internal Revenue
Code 163(c) permits land rent deductions for leases of more than
15 years, including renewal periods. However, payments to buy
the land are not deductible.
5. Mortgage Payment
Penalty
Mortgage payment
penalties are tax deductible as itemized interest. Some mortgages
have a pre-payment penalty if the mortgage is pre-paid, to avoid
interest accumulating, prior to due date.
6.
Undeducted Mortgage Loan Fee
Any undeducted loan
fees for obtaining a mortgage that are deduced over the life of
a loan can be fully deducted when the loan is paid off.
7. Some Casualty
Loses are tax deductible
Any uninsured losses
due to fire, flood, earthquake, mudslide, theft, accident, broken
water pipe, vandalism, rainstorm or riot, can qualify as a casualty
loss deduction. However, slow-loss events such as termite damage,
dry rot damage, rust, crop loss, corrosion, are not tax deductible.
8. Property Taxes
are Deductible
Deduct only the amount
of your tax bill from your local tax collector, not the estimated
amount held in escrow by your mortgage lender.
9. Claim Deductions
on your Second or Vacation Home
The same deductions
of your primary residence are applicable on your second or vacation
home.
10. Claim Deductions
for Home Construction Loan Interest
Interest paid on
a construction loan is tax deductible, if the construction period
does not exceed 24 months before occupancy of your principal residence.
