Mortgage Related Tax Deductions

It's that time of year again, tax time. Most people dread getting their taxes filed including myself but if you are a homeowner there are plenty of beneficial tax deductions to take. Let's review to make sure you are aware of all the mortgage related deductions so you don't miss out this tax season.

1.Mortgage Interest
Interest that you pay on your mortgage loan is tax deductible for your primary or secondary residence. Mortgage interest deduction on rental properties may not apply (check with IRS). There are certain limitations as to the total dollar amount of the tax deduction. Please refer to the IRS publication 936, Home Mortgage Interest Deduction, visit www.irs.gov for details. You should receive IRS form 1098 from your lender which will show the accumulated interest paid for that year.

2.Property Taxes
Property taxes are fully deductible from your income. If you have an escrow/impound account with your lender you can't deduct the escrow money held until the money is actually used to pay your property taxes. Check with your mortgage servicer if you have questions regarding tax payments out of your escrow account.

3.Mortgage Insurance
If your down payment was less than 20 percent when you first bought your home there is a good chance you have mortgage insurance sometimes referred to as PMI. Mortgage insurance premiums are tax deductible for mortgages originated between 2007 through 2011. As my understanding goes Congress hasn't decided on how to treat mortgage insurance deductibility in 2012. There are some deduction phase outs depending on your income. Please refer to the IRS website or consult your tax consultant for details on income phase outs.

4.Points
Your lender or mortgage broker will charge several fees associated with a new home purchase or refinance loan. The IRS allows one of the fees called "points" to be deducted from income. One point is equal to 1% of the loan amount. Points is a loosely defined term so I would recommend referring to your "Final HUD Settlement Statement" and asking your CPA or tax preparer to help you determine if any of your closing costs charged qualify as "Points".

We only scratched the surface on some of the ways homeowners can save money on their taxes. Other topics to look into are Capital Gains exclusions, moving costs, mortgage tax credits, home equity loan interest deductions, and much more. If you have any comments or questions regarding my blog or how I can help you regarding your home financing please let us know.

C2 Financial Corp