Tax Savings Tips for Homeowners
Homeownership comes with numerous tax benefits to reduce your taxable income. And, if your taxable income decreases, you could owe less in taxes. Being a homeowner is when many households shift from standard filings to itemized filings. With itemizing you will quickly realize home related eligible deductions for:
- Loan costs and fees
- Mortgage interest
- Property taxes
- Private mortgage insurance
One-Time Homeowner Tax Deductions
The first year of homeownership includes being eligible to deduct loan costs and fees. This information will be noted on Closing Disclosure. Your tax professional will be interested in the labelled as “loan costs,” “application fee,” or “underwriting fee.” Each lender uses their own language for labelling these areas.
Points Paid
If you paid points to get a better rate on your mortgage the points could be deductible your first year as interest. Points would have been listed in the origination fees on your Closing Disclosure.
Recurring Homeowner Tax Deductions
Mortgage Interest
The mortgage interest deduction is a sizable tax break. During the first years of your loan the bulk of your monthly house payment is paying towards the interest, not the principle. The amortization schedule you receive at closing will note how this amount shifts over time.
Property Taxes
You can deduct the taxes on the property. For the first year this amount will most likely be split between you and seller as you each retained ownership of the property for the months you owned the property. This info shows up on the Closing Document as “adjustments for items paid by seller in advance” or “adjustments for items unpaid by seller.” During the second year, you will get the full year’s deduction.
Private Mortgage Insurance
Private mortgage insurance (PMI) protects lenders when they accept low down payments of less than 20%. This type of insurance is deductible for homeowners for every year it’s paid.
What’s Not Deductible
Several common items people think are deductible but are actually not include:
- Homeowners insurance
- Mortgage insurance if your income is more than about $100,000 (2016)
- Dues to a homeowner’s association
- Appraisal fees
- Repairs, unless required for medical care or accessibility
Now that you’re armed with more information, be sure to discuss this with your tax professional to see which deductions apply to your filings. Knowing these deductions and tax write-offs may give you more peace of mind come tax time and save you more money for your home.
Contact us for answers about real estate values in your neighborhood or about in a neighborhood of interest to you. Our team is ready to assist you. The Bean Group has real estate listings spanning the New Hampshire seacoast and Southern Maine area.
Information herein deemed reliable but not guaranteed. With the recent federal tax law signed by President Donald Trump, on December 22, 2017 and going into effect for the 2018 tax year, there may be impacts on the homeownership tax benefits described in this article.
