Home Ownership Tax Deductions
Tax Season is upon us and we thought it would be a good idea to review some of the basic ways in which home ownership can benefit you come April 18th.
Mortgage Interest Deduction:
The largest and most often used tax deduction for home ownership is the Mortgage Interest deduction. You may deduct interest payments on up to $1 million in debt for a married couple or $500,000 for single or married filing separately. These deductions can be on primary or secondary residences and apply to condos, co-ops, and traditional houses.
Points, a form of upfront fee that is paid to the mortgage company at closing, are also deductible. Points are purchased as a way to lower the interest rate on a home purchase and are deductible on an amortized basis over the life of the mortgage. Under certain circumstances the entire amount of the points may be deducted in the year of purchase, for more information see IRS Publication 530.
Property Tax Deduction:
Real estate taxes paid on one’s primary residence are also deductible when itemizing. This deduction alone is often enough for you to decide to itemize instead of taking the standard deduction. If you purchased a home this year, you will want to make sure that you include any property taxes paid at closing. For Co-Ops, this will be a percentage of your maintenance and will be written out in a 1099 you receive at the end of the year.
Knowing what you cannot deduct is also vital to properly filling your taxes. Condo owners can not deduct common charges and Co-Op owners can only deduct a portion of their maintenance. Insurance on a home including fire and title insurance is not deductible. Wages paid to domestic help as well as the cost of utilities are also not deductible. Most settlement costs, forfeited deposits, down payments, or earnest money are also not deductible as well as depreciation expenses.