Purchasing a home comes with many tangible and intangible benefits. One that is commonly overlooked until the start of the year rolls around is the deductions you get on your taxes. As a homeowner, you’re likely able to deduct most, if not all, of your home mortgage interest resulting in a lower tax bill.
Interest Paid
Interest paid on a loan that was used to buy, build, or complete substantial renovations on your primary or secondary home falls into the deductible mortgage interest bucket. The property can be a…
- house
- apartment
- condominium
- mobile home
- house trailer
- co-op
The amount of interest you can deduct does cap out at $750,000, although most homeowners do not reach that threshold.
Interest Statement
At the end of each tax year, your lender will provide you with a mortgage interest statement, or Form 1098. The 1098 states the total amount of interest paid for that year. You are responsible for reporting an accurate total of interest paid when you file. This requires you to itemize your taxes. If you have purchased a home with one or more people, each homeowner can deduct the amount of interest they personally pay.
Other Deductions
There are a few others payments that may count as mortgage interest and could be added to your deductible amount. These include…
- mortgage points
- late payment charges
- prepayment penalties
- interest on a home equity loan
- certain mortgage insurance premiums
Reduce Taxable Income
By deducting mortgage interest from your taxes, you are reducing your taxable income. As a result, you have less tax liability and reduce the amount of taxes you owe and that is more money in your pocket!
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