Homeownership has always been the "great American dream".
To foster and encourage this dream, Congress has
consistently enacted tax legislation which favors homeowners. Indeed, much has
been written that our tax laws discriminate against renters, by giving unfair
and unequal tax benefits to those who own homes.
Every four years, some candidate for high political
office tries to focus our attention on equalizing the tax laws, and repealing
the homeowner benefits, but these arguments have consistently fallen on deaf
ears. And this coming election year is no different.
For those of us who own homes, here is a list of
the itemized tax deductions available to the average homeowner. Every year, you are permitted to deduct the
following expenses:
Real property taxes, both state and local, can be deducted. However, it should be noted that real estate taxes are only deductible in the year they are actually paid to the government. Thus, if in year 2015, your lender held in escrow moneys for taxes due in 2016, you cannot take a deduction for these taxes when you file your 2015 tax return.
Mortgage lenders are required to send an annual statement to borrowers by the end of January of each year, reflecting the amount of mortgage interest and real estate taxes the homeowner paid during the previous year.
2) MORTGAGE INTEREST
Interest on mortgage loans on a first or second home is fully
deductible, subject to the following limitations: acquisition loans up to $1
million, & home equity loans up to $100,000. If you are married, but file
separately, these limits are split in half.
You must understand the concept of an acquisition
loan. To qualify for such a loan, you must buy, construct or substantially
improve your home. If you refinance for more than the outstanding indebtedness,
the excess amount does not qualify as an acquisition loan unless you use all of
the excess to improve your home. However, any other excess may qualify as a
home equity loan.
Let us look at this example: Several
years ago, you purchased your house for $150,000 and obtained a mortgage in the
amount of $100,000. Last year, your mortgage indebtedness had been reduced to
$95,000, but your house was worth $300,000.
Because
rates were low last year, you refinanced and were able to get a new mortgage of
$175,000. Your acquisition indebtedness is $95,000. The additional $80,000 that
you took out of your equity does not qualify as acquisition indebtedness, but
since it is under $100,000, it qualifies as if it was a home equity loan.
Several
years ago, the Internal Revenue Service ruled that one does not have to take
out a separate home equity loan to qualify for this aspect of the tax
deduction. However, if you had borrowed $200,000, you would only be able to
deduct interest on $195,000 of your loan -- the $95,000 acquisition
indebtedness, plus the $100,000 home equity. The remaining interest is treated as personal interest, and is not deductible.
3) POINTS
When you obtain a mortgage loan, some lenders will allow you to pay one or more points to get that loan. The more points you pay, the lower your mortgage interest rate should be. Whether referred to as "loan origination fees," "premium charges," or "discounts," these are still points. Each point is one percent of the amount borrowed; if you obtain a loan of $170,000, each point will cost you $1,700.
The IRS has
also ruled that even if points are paid by sellers, they are still deductible
by the homebuyer. Points paid to a lender when you refinance your current
mortgage are not fully deductible in the year they are paid; you have to
allocate the amount over the life of the loan. For example, you paid $1700 in
points for a 30 year loan. Each year you are permitted to deduct only $56.66
($1700 divided by 30); however, when you pay off this new loan, any remaining
portion of the points you have not deducted are then deductible in full. Written by Benny L. Kass
Visit
my website for additional information about Real Estate and our Central Ohio
Market! www.DeLena.com
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