With the housing market improving in some regions of the country, many people are becoming new homeowners. Now that you are homeowner, you have some new tax considerations. The good news is you can deduct many home-related expenses. And most homeowners enjoy tax breaks even when they sell their residence.
Mortgage Interest. Your biggest tax break is reflected in the house payment you make each month since, for most homeowners, the bulk of that check goes toward interest. All that interest is deductible, unless your loan is more than $1 million. Interest tax breaks don’t end with your home’s first mortgage. Did you pull out extra cash through refinancing? Or did you decide instead to get a home equity loan or line of credit? Generally, equity debts of $100,000 or less are fully deductible. Thinking of buying a second home? Mortgage interest on a second home also is fully deductible. You can even rent out your second property for part of the year and still take advantage of the mortgage interest tax deduction as long as you spend some time there.
Points. Did you pay points to get a better rate on any of your various home loans? The IRS lets you deduct points in the year you paid them if, among other things, the loan is to purchase or build your main home. Make sure your loan meets all the qualification requirements so that you can deduct points all at once.
Taxes. Another major deduction in connection with your home is property taxes. A big part of most monthly loan payments is taxes. This amount should be included on the annual statement you get from your lender, along with your loan interest information. These taxes will be an annual deduction as long as you own your home. But if this is your first tax year in your house, dig out the settlement statement sheet to find additional tax payment data.
When you sell. When you decide to move up to a bigger home, you’ll be able to avoid some taxes on the profit you make. source: Kay Bell, MSN 1/29/14