If you didn’t spend the weekend working on your taxes, chances are you are feverishly trying to finish them today. With that in mind, here are five tax breaks that homeowners can take advantage of.
- Mortgage Interest Deduction — The mortgage interest deduction is not only the most popular real estate tax break, but one of the more straightforward. In short, 100 percent of the interest that you pay on your home loan in a given year is tax deductible. Recent home buyers will be the most excited by this deduction given that, in the beginning, mortgage payments consist almost entirely of interest.
- Property Tax Deduction — Like mortgage interest, property taxes paid to your local or state government in a given year are fully deductible. However, to take advantage of this deduction and the one above, the property in question must be your primary residence.
- Private Mortgage Insurance — Private mortgage insurance (PMI) is a frequent cost associated with mortgage payments these days, as it is tacked on for most borrowers who can not pony up a 20 percent down payment. PMI became tax deductible back in 2007 as part of the Tax Relief and Health Care Act of 2006, and remains in effect for mortgages issued through the end of the year. It should be noted that there are a number of income restrictions associated with the PMI deduction that Bankrate.com has aptly summed up:
The deduction begins being phased out when the homeowner’s adjusted gross income (AGI) is more than $100,000. This income limit applies to single, head of household or married filing jointly taxpayers. The phaseout begins at $50,000 AGI for married persons filing separate returns. The PMI deduction is reduced by 10 percent for each $1,000 a filer’s income is over the AGI limit. The deduction disappears completely for most homeowners whose AGI is $109,000 or $54,500 for married filing separately taxpayers.
- Energy Efficient Renovations — If a renovation of your home includes the installation of energy-efficient products or mechanisms, you are likely eligible for a tax credit. Homeowners can receive a credit for the installation of solar panels and water heaters, geo-thermal heat pumps and a number of other improvements. This form provides a more detailed explanation of the credits.
- Mortgage Points Deduction — Mortgage points are essentially a form of pre-paid interest on a home loan. When Freddie Mac issues its mortgage rates each week, the published average usually includes an average “point” that the lender will charge. That point translates into a percentage of the total loan that the borrower must pay up front in order to get the latest interest rate. Homeowners can deduct all the points paid on a home loan in a given year. More details and requirements for this deduction can be found here.
For more information of real estate-related tax deductions, check out this IRS document.