Deductible Homeowners Expenses

One of the advantages of owning your home is that the home mortgage interest and real estate taxes paid, can be deducted from your federal income tax*.

To do so, you will need to comply with current tax laws and complete the appropriate federal tax forms and itemized deduction schedules. (Schedule A of the 1040)

Home Mortgage Interest

For your home mortgage interest to be deductible, it must be for a first or second mortgage, a home improvement loan or a home equity loan. Additionally

• The mortgage loan must be secured by your main home or a second home
• Only interest paid for that tax year can be deducted

The amount you can deduct can be limited if your mortgage balance is more than $1 million ($500,000 if married filing separately) or the mortgage was taken out for reasons other than to buy, build or improve your home.

Points

Points (aka loan origination fees, maximum loan charges, loan discount, or discount points) are generally treated as prepaid interest and, as such, the full amount can be deducted in the year paid.  If you are refinancing (and including the costs in your loan)then the deduction must be taken over the term of the loan. (Total dollar amount of cost divided by the term of the loan.  If 30 years then it would be deducted at 1/30 of cost for the next 30 years.)  If you are paying the fees in cash at closing, you may be able to deduct them.  Your accountant or tax advisor will know best.

Real Estate Taxes

State or local real estate taxes can be deduction, if they are paid in the tax year. To qualify, the tax must be levied on the property assessed value

Mortgage Insurance premiums

As of January 1st 2008 mortgage insurance premiums for 1st time home buyers became a tax deductible item.  The annual cost for your mortgage insurance is deducted on line 13 of the 1040 A.  Types of mortgage insurance.

Restrictions on Itemized Deductions

The amount of itemized deductions you can take are restricted by your adjustable gross income. In 2003, the limits were $139,500 for single persons, persons filing as head of household or qualified widow(er), or married persons filing jointly; and $69,750 for married persons filing a separate return.

Nondeductible items

Many of the expenses related to owning your own home cannot be deducted from your income tax. These nondeductible items can include:

• Most settlement costs, including (but not limited to) appraisal fees, notary fees, VA funding fees, and mortgage preparation costs
• Insurance
• Utilities
• Domestic help
• Depreciation

Check with the IRS

*The information contained in this article is for informational purposes only and may not reflect current tax year rules and regulations. You'll need to consult with your tax attorney, CPA, or the IRS for current tax year rules, restrictions and regulations.  IRS Website for home owner deductions.