It is well known that home ownership allows many income tax advantages that those who rent do not receive. Two of those key deductions pertain to the mortgage interest and property taxes paid during the tax year in question. Although there are many other deductions when buying or selling a home, we will focus on those that you receive during home ownership as an owner-occupant.
The most significant deduction comes from the mortgage interest you pay throughout the year. Most likely your loan is "fully amortized" which means a portion of your monthly payment repays the debt and a portion is applied toward the interest. The portion which is applied to interest will typically be shown on a Form 1098, Mortgage Interest Statement, which is the annual statement sent to you from your lien holder. This amount is your deductible interest, providing you meet certain conditions. Please note, if your loan is "grandfathered", which means you obtained it prior to Oct. 13, 1987, all of your interest is considered deductible. Any loan obtained thereafter must meet certain conditions to be fully deductible, but luckily, those limiting conditions do not apply to most homeowners.
Another noteworthy deduction comes from your property taxes. These taxes are deductible if they are charged uniformly against all property and based on the assessed value. Be aware that some states and counties impose local special assessments for community improvements, such as for sidewalks, streets, or sewer lines. Although these items are also based on your property's assessed value, they are not deductible.
Also, charges for trash collection or homeowner association assessments are not deductible. However, there are some local property taxes that are used for maintenance, repair, or interest charges related to these benefits. These taxes would be considered deductible, but a careful analysis of your tax records is recommended to ensure proper documentation of your deductions. There are also deductions allowed for points paid to obtain your mortgage loan or to refinance an existing mortgage. Don't get this confused with loan origination fees that are not deductible but sometimes referred to as points.
Jennifer Cook is an expert and 6 year veteran to the residential real estate sales market in the Houston area. She specializes in The Woodlands, Spring, and Lake Conroe areas and has been a member of the highly acclaimed Dowdy Team for 3 years. For more information, visit her team website at http://www.har.com/jennrealtor
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