Are You Getting the Home Tax Deductions You’re Entitled To?
August 20, 2017 | Grace Saliente
Owning a home can pay off at tax time.
Take advantage of these home ownership-related tax deductions and strategies to lower your tax bill:

Mortgage Interest Deduction

One of the neatest deductions itemizing homeowners can take advantage of is the mortgage interest deduction, which you claim on Schedule A.  To get the mortgage interest deduction, your mortgage must be secured  by your home — and your home can be a house, trailer, or boat, as long  as you can sleep in it, cook in it, and it has a toilet.
Interest  you pay on a mortgage of up to $1 million — or $500,000 if you’re  married filing separately — is deductible when you use the loan to buy,  build, or improve your home.
If you take on another mortgage  (including a second mortgage, home equity loan, or home equity line of  credit) to improve your home or to buy or build a second home, that  counts towards the $1 million limit.
If you use loans secured by  your home for other things — like sending your kid to college — you can  still deduct the interest on loans up $100,000 ($50,000 for married  filing separately) because your home secures the loan.

Prepaid Interest Deduction

Prepaid  interest (or points) you paid when you took out your mortgage is  generally 100% deductible in the year you paid it along with other  mortgage interest.
If you refinance your mortgage and use that  money for home improvements, any points you pay are also deductible in  the same year.
But if you refinance to get a better rate or  shorten the length of your mortgage, or to use the money for something  other than home improvements, such as college tuition, you’ll need to  deduct the points over the life of your mortgage. Say you refi into a  10-year mortgage and pay $3,000 in points. You can deduct $300 per year  for 10 years.
So what happens if you refi again down the road?
Example:  Three years after your first refi, you refinance again. Using the  $3,000 in points scenario above, you’ll have deducted $900 ($300 x 3  years) so far. That leaves $2,400, which you can deduct in full the year  you complete your second refi. If you paid points for the new loan, the  process starts again; you can deduct the points over the life of the  loan.
Home mortgage interest and points are reported on Schedule A of IRS Form 1040.
Your lender will send you a Form 1098  that lists the points you paid. If not, you should be able to find the  amount listed on the HUD-1 settlement sheet you got when you closed the  purchase of your home or your refinance closing.

Keep these money-saving homeownership benefits in mind during tax season. More like this.

Property Tax Deduction

You can deduct on Schedule A  the real estate property taxes you pay. If you have a mortgage with an  escrow account, the amount of real estate property taxes you paid shows  up on your annual escrow statement.
If you bought a house this  year, check your HUD-1 settlement statement to see if you paid any  property taxes when you closed the purchase of your house. Those taxes  are deductible on Schedule A, too.

PMI and FHA Mortgage Insurance Premiums

You can deduct the cost of private mortgage insurance  (PMI) as mortgage interest on Schedule A if you itemize your return.  The change only applies to loans taken out in 2007 or later.
What’s  PMI? If you have a mortgage but didn’t put down a fairly good-sized  down payment (usually 20%), the lender requires the mortgage be insured.  The premium on that insurance can be deducted, so long as your income  is less than $100,000 (or $50,000 for married filing separately).
If  your adjusted gross income is more than $100,000, your deduction is  reduced by 10% for each $1,000 ($500 in the case of a married individual  filing a separate return) that your adjusted gross income exceeds  $100,000 ($50,000 in the case of a married individual filing a separate  return). So, if you make $110,000 or more, you can’t claim the deduction  (10% x 10 = 100%).
Besides private mortgage insurance, there’s  government insurance from FHA, VA, and the Rural Housing Service. Some  of those premiums are paid at closing, and deducting them is  complicated. A tax adviser or tax software program can help you  calculate this deduction. Also, the rules vary between the agencies.

Vacation Home Tax Deductions

The  rules on tax deductions for vacation homes are complicated. Do yourself  a favor and keep good records about how and when you use your vacation  home.
If you’re the only one using your vacation home (you don’t  rent it out for more than 14 days a year), you deduct mortgage interest  and real estate taxes on Schedule A.
Rent your vacation home out  for more than 14 days and use it yourself fewer than 15 days (or 10% of  total rental days, whichever is greater), and it’s treated like a rental  property. Your expenses are deducted on Schedule E.
Rent  your home for part of the year and use it yourself for more than the  greater of 14 days or 10% of the days you rent it and you have to keep  track of income, expenses, and allocate them based on how often you used  and how often you rented the house.

Homebuyer Tax Credit

This isn’t a deduction, but it’s important to keep track of if you claimed it in 2008.
There were federal first-time homebuyer tax credits in 2008, 2009, and 2010.
If  you claimed the homebuyer tax credit for a purchase made after April 8,  2008, and before Jan. 1, 2009, you must repay 1/15th of the credit over  15 years, with no interest.
The IRS has a tool  you can use to help figure out what you owe each year until it’s paid  off. Or if the home stops being your main home, you may need to add the  remaining unpaid credit amount to your income tax on your next tax  return.
Generally, you don’t have to pay back the credit if you  bought your home in 2009, 2010, or early 2011. The exception: You have  to repay the full credit amount  if you sold your house or stopped using it as primary residence within  36 months of the purchase date. Then you must repay it with your tax  return for the year the home stopped being your principal residence.
The  repayment rules are less rigorous for uniformed service members,  Foreign Service workers, and intelligence community workers who got sent  on extended duty at least 50 miles from their principal residence.

Energy-Efficiency Upgrades

The  Nonbusiness Energy Tax Credit lets you claim a credit for installing  energy-efficient home systems. Tax credits are especially valuable  because they let you offset what you owe the IRS dollar for dollar, in  this case, for up to 10% of the amount you spent on certain upgrades.
The  credit carries a lifetime cap of $500 (less for some products), so if  you’ve used it in years past, you’ll have to subtract prior tax credits  from that $500 limit. Lucky for you, there’s no cap on how much you’ll  save on utility bills thanks to your energy-efficiency upgrades.
Among the upgrades that might qualify for the credit:
File IRS Form 5695 with your return.

Related: A Homeowner’s Guide to Taxes
This  article provides general information about tax laws and consequences,  but shouldn’t be relied upon as tax or legal advice applicable to  particular transactions or circumstances. Consult a tax professional for  such advice; tax laws may vary by jurisdiction.



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