Mortgage tax deductions

Home ownership is a proud, exciting and yet nerve-wracking time in one’s life. You will probably need to take out a mortgage to finance your purchase.

A mortgage can be a scary thing in itself. What type, how much, for how long and will I qualify? These are all questions that surround the mortgage process.

But there is a known benefit for mortgages (besides the fact that they are the only reason you are able to buy a home); the tax benefits.

The ezinearticles.com article, “ Mortgage Loan Tax Advantages: Maximizing Your Mortgage Tax Deductions,” by Louie Latour, explains how your mortgage can provide you the best possible tax break.

“Ownership of your home has the added benefit of being able to deduct mortgage interest from your income tax.”

If you are a homeowner prospectively looking to maximize your mortgage interest tax deduction, there are several rules and facts you should familiarize yourself with.

“For most people buying a home is the largest purchase they will make. Purchasing a home is also an effective tax shelter for part of your income; the interest you pay on the mortgage of your primary or secondary home is fully tax-deductible, up to one million dollars per year. You can also deduct the interest paid on home equity loans and second mortgages.”

An important thing to know if you have recently purchased a home is that any points you paid for can be deducted. In case you are unfamiliar with the term, a point is charged by your lender to help pay for his or her expenses. You are required to pay for points upfront.

One point is equivalent to one percent of the entire amount of the loan. For example if you take out a $300,000 mortgage, one point would mean that you have to pay your lender an additional $3,000.

There are special rules and regulations associated with deducting points. If you cannot remove the whole charge, you may be able to have points discounted or you may qualify to have the points payable over an extended amount of time; usually added to your monthly mortgage payment.

“Another tax advantage is when you sell your home you do not pay taxes on any profit realized from the sale, up to $250,00 for a single homeowner or $500,00 for a married couple. In order to claim this tax break the home must be your primary residence and you will need to have resided in the home for at least two years. If you do not qualify based on this rule you may be able to claim a partial deduction based on IRS rules.”

There are many tax benefits available through a mortgage. The best thing to do to realize the full potential of your available tax breaks is through research. Your lender may not openly tell you of all these deductions.

Back to Articles

Back to Articles