Mortgage Advice

4 Tax Deductions Homeowners Should Take Advantage Of

February 20, 2014

Please visit this updated blog post regarding current tax benefits for homeowners.

It’s that time of year again. Tax season is officially here, and I have some good news to share! If you bought or sold a home this year, you have the ability to itemize your tax return, which means there are additional tax breaks you (and your bank account) will benefit from.

If you want to pay less money in taxes and put some extra cash in your bank account, ask your accountant about these four tax deductions:

You can write off your mortgage interest

Typically, the biggest tax benefit that comes with buying a home is the ability to write off the interest paid on your mortgage loan. Every penny you pay in interest is deductible, based on your tax bracket. That means if you paid $12,000 in interest on your mortgage loan this year, your taxable income would also drop by $12,000. This is extremely beneficial for new homeowners, since their monthly mortgage payment is primarily made of interest to begin with. Keep in mind that you can only deduct mortgage interest on a loan valued at $1,000,000 or under. Check with your accountant on what pertains to you.

Property taxes are also deductible

Generally, the ability to write off property taxes is the second biggest tax deduction homeowners are eligible to receive. Like mortgage interest, summer and winter property taxes can be 100% deductible, meaning you’ll pay less in income taxes and potentially get a bigger return from the IRS. Again, the percentage of tax deduction on property taxes useable should always be determined by a qualified tax professional.

There are tax perks for paying mortgage points

If you paid discount points at closing to lower your interest rate, you can deduct this cost on your tax return, too. If the points were paid at closing and not rolled into the loan, they must be deducted in the year they were paid. If they were financed points, the deduction gets spread out over the life of the loan.

Profits on home sales are tax-free

If you sold your home in 2013, the profit you made on the sale of that home will not be considered taxable income. However, in order to receive this tax perk, the home must have been your primary residence for two of the past five years. Individuals are allowed to claim $250,000 from the sale tax-free and couples are allowed to claim $500,000 of profit tax-free.

As you can see, there are many financial perks that come with owning a home. Before you file your taxes, check with a certified tax professional to see what deductions you qualify to take. They will be able to explain what tax breaks you’re eligible to receive and how it will affect your obligations to Uncle Sam.