There are many costs and benefits associated with living “the American dream” and it’s important to remember that owning a property can qualify you for some potentially large tax breaks. Whether you already own a home or are considering purchasing a home in 2017, here are six opportunities for tax savings worth looking into as a homeowner:
Homeowners are allowed to deduct the amount of money they paid towards their mortgage interest from federal and state taxes. This can provide a relief for new homeowners since interest payments can be the largest component of a mortgage payment in the first couple of years of owning a home. If you happen to own a second home, you can also deduct the mortgage interest for that, as long as it is not a rental property. You will receive a Mortgage Interest Statement (Form 1098) from your lender, which you will file with your tax return.
A mortgage “point” is a payment that equals typically around 1% of your total loan amount. A borrower can pay points to “buy down” their rate. The first year that you own your home, you are able to claim the points you paid as a deduction for your taxes. Since points of 1% or more are common, the savings can be quite considerable.
Homeowners are able to take a tax deduction for their local property taxes. Depending on where a homeowner lives, this can be a substantial deduction.
If you spent money to improve the energy efficiency of your home, you may qualify for a tax credit. Unlike a deduction, which only saves you the tax amount you paid based on your income bracket, a tax credit is a dollar-for-dollar savings. Upgrading items such as insulation, windows, doors and roofs may qualify you for this credit. For more information regarding energy credits and tax filing, click here.
Borrowers who are unable to put down 20% for a down payment are required to purchase private mortgage insurance (PMI) to protect the lender in case the loan defaults. PMI holders are able to deduct their PMI payments from their annual taxes.
If you suffered property damage and weren’t reimbursed by an insurance company for repairs, you may be eligible for a tax deduction. The cost of your casualty loss must exceed 10% of your adjusted gross income in order to be eligible. So although you won’t be able to write off any small-time repairs, you can claim any major damage that your home might have suffered during any storms or fires.
Consult with a tax professional to ensure that you don’t miss out on any tax savings related to homeownership. If you are thinking about buying a home or refinancing the one you currently own, contact a loan advisor near you to evaluate your options.