There are several components to a mortgage that allow for mortgage interest tax deductions to qualify. Some people can qualify for all of them, while others only use one or two. Either way, they save you money on your total tax liability.
Yes, owning a home also comes with many qualified mortgage tax deductions, also called tax write-offs. To claim your mortgage interest tax deductions, you must itemize your taxes instead of taking the standard deduction.
The most common mortgage tax deduction is the interest you paid on the loan during the year. You will receive a Form 1098, which is a Mortgage Interest Statement, from your mortgage lender at the beginning of each year that totals the mortgage interest you paid during the previous tax year. Any mortgage interest that you paid the very first year you owned the home will also qualify.
When closing on your new home your closing fees can be another one of your mortgage interest tax deductions.
Check with your accountant, as the loan origination fees paid on your original mortgage loan may be another tax write-off you can take, if you file your taxes within a year of purchasing your home. You must also occupy the home as your primary residence.
The real-estate taxes that you pay on your home are also tax-deductible, and that includes the taxes paid the very first year you purchased your home as well.
Your mortgage tax write-offs can also cover any points paid when you first acquired your mortgage loan; they would be tax-deductible in the very first year that they were paid.
If you are paying Private Mortgage Insurance, or PMI, it can qualify as a mortgage tax deduction. You are allowed to deduct any PMI that you paid during the tax year, or that applied to the tax year if you prepaid your mortgage insurance in a lump sum.
There are some cases where your mortgage interest tax deductions can also cover the write-off a home office if you are self-employed, depending on the direct and indirect expenses involved in your business.
Your mortgage tax write-offs could be even greater in specific situations, depending on how your income is generated and what you do for a living.
Your mortgage tax deductions can also cover first time home-buyer grants, or down payment assistance programs. Make sure to check with your specific state for eligible qualifications.
Deductions Summed Up
There are many different components of a mortgage and owning a home that give you excellent tax benefits. If you’re a first time buyer, or a return home owner, it’s always best to consult a tax professional to make sure taking a deduction is right for your situation. But in general, if you itemize your taxes, you can deduct your mortgage interest, real-estate taxes, PMI, closing fees, loan origination fees, and points that you paid in the current tax year. These deductions reduce your tax liability, because the amounts are subtracted directly from your taxable income. If you think homeownership might be the next step for you, reach out to a mortgage lender today, so you will be able to claim these deductions in the next tax year.
When you are ready to investigate becoming a homeowner, or if you are needing to refinance your current home, please contact Michael Vanella to discuss mortgage options for your situation, and ensure your understanding of the mortgage process.