Tax season is here! If you own your own home, then make sure you are getting every deduction possible, which may make a difference in whether you can get a refund and how much. Here are some of the deductions homeowners can take advantage of.
The interest that you paid on your mortgage for the past year is tax deductible. The deduction also applies toward interest paid on a condo, mobile home, boat or RV used as a residence. Additionally, this can include a second mortgage, a home equity loan and a line of credit.
As the primary borrower, you can itemize the interest paid over the course of the year as long as your mortgage is secured by your main home or a second home. You can't deduct interest on a mortgage for a third home or fourth home.
If you are married and filing jointly, you can deduct all your interest payments up to $1 million in mortgage debt secured by a first or second home. If married and filing separately, the maximum is $500,000.
Just like mortgage interest is tax deductible, so are points that are paid to lower the interest rate. If you purchased points as a way to lower your interest rate, you may be able to deduct these points come tax time.
Points that were purchased for refinancing a mortgage can also be deductible, but only over the life of the loan, not all at once. Homeowners who refinance can write off the balance of the old points and begin to amortize the new points.
Home Improvement Loan Interest
If you took out a loan to do some major home improvements, then you can deduct the interest paid on that loan. The home improvements must be considered capital improvements, meaning any addition or alteration that meets all of the following:
- Substantially adds to the value, or appreciably prolongs the useful life of the property.
- It becomes part of the property or is permanently affixed to the property so that removal would cause material damage to the property.
- It is intended to become a permanent installation.
An example of a capital improvement that qualifies for the tax deduction would be adding a new roof, swimming pool, porch or heating and cooling system to the home.
The city and state property taxes you pay annually are fully deductible from your income. If you have a mortgage with an escrow account, the amount of real estate property taxes you paid shows up on your annual escrow statement.
If you purchased your home in 2016, check your HUD-1 settlement statement to see if you paid any property taxes when you closed the purchase of your home.
You may be able to deduct some of your moving costs if you moved because you changed jobs. There are several requirements that must be met to qualify for this deduction, including that your new workplace be at least 50 miles farther from your old home than your old job was from your old home.
Deductions related to moving costs could include travel or transportation costs, expenses for lodging, and fees for storing your household goods.
Disclaimer: American Pacific Mortgage are not tax professionals. Please contact your tax prepared for additional information.