It’s Tax Season! 4 Real Estate Deductions For Your Consideration

March 02, 2016 / Buying, Real Estate Trends, Selling

FOR SALE! 18 Woodside Meadow, York, Maine

FOR SALE! 18 Woodside Meadow, York, Maine

One of the perks of homeownership can be the tax deductions, as Redfin outlines in its recent article about real estate tax deductions not to overlook.  However, they emphasize that “if your itemized deductions don’t add up to as much as the standard deduction you’re eligible for, the standard deduction would be the better way to go.”

1.  Mortgage Interest

As you know, in the initial years of a mortgage, most of your payments go toward interest rather than principal.  Fortunately, you can deduct this interest come tax season.  Using IRS form 1098, you can deduct mortgage interest on your primary and sometimes secondary homes, up to $1 million.  It applies to home purchases, refinanced mortgages, and home equity lines of credit (or second mortgages).  This deduction can put thousands of dollars back in the homeowner’s pocket.  Your lender will send you a mortgage interest statement to give you the total amount of interest you paid in a year and assist you in figuring out whether it is worthwhile to itemize your deductions.

2.  Points

For 2015, if you bought a home you can deduct mortgage points.  These points are paid by the borrower and come in 2 forms – discount points and loan origination fees.  One point is equal to 1% of your loan amount.  So, for example, if you bought a $500,000 property with a 1% origination fee, that’s $5000 you can deduct come tax season.

3.  Property Taxes

You can also deduct your annual property taxes.  The amount deductible is the amount you paid in a year, not the amount due.  Your county property assessor usually sends out a statement at the beginning of the year showing the amount of your property taxes.   Also if you bought a home and reimbursed the sellers for taxes the sellers paid in a year, you will see this reflected on your settlement statement and not on your 1098.

4.  Mortgage Insurance Premium

If your downpayment was less than 20% when you purchased your home, you likely will pay a mortgage insurance premium.  The IRS treats this payment as interest and you can deduct it on Schedule A of your Form 1040.  But this deduction is not allowed for higher income earners (above adjusted gross income of $109,000 annually).

And… Items You Can’t Deduct According to Redfin:

  • Home and title insurance coverage (other than mortgage insurance premiums)
  • Depreciation
  • Utilities, such as gas, electricity and water
  • Most settlement costs (other than points)
  • Forfeited deposits, down payments or earnest money
  • Home improvements paid via a private loan, cash or credit card
  • Homeowners association fees
  • Transfer taxes (stamp taxes) in a personal home sale

Always consult a licensed tax professional for guidance on these issues and any other tax related questions you may have.