Business Magazine

5 Crucial Tax Deductions

By Knoxvillehometeam @KnoxHomeTeam

 

As the time to file income taxes approaches, those who purchased a home the previous year need to know how to use it to their advantage. There are many tax deductions that can be used from the purchase of real estate. Not all of them will apply to every homeowner. Let’s discuss 5 of the most common.

taxes

  1. Home Mortgage Interest – The mortgage interest deduction has always been the most popular tax benefit of home buyers in the U.S.  New homeowners’ monthly mortgage payments are made up almost entirely by interest for the first few years. Their ability to deduct that interest can result in a healthy reduction in tax liability. Although, as years pass the amount of interest paid in each monthly payment decreases and the amount toward the principle increases, it is still a solid deduction for tax payers.
  1. Mortgage Points or Origination – Homeowners who paid points on their home purchase or refinance can often deduct those points on their tax returns. When you pay “points” on a mortgage you’re paying extra money to your lender upon execution of the loan in order to lower your interest rate. Each point equals 1% of the purchase price. Keep in mind, laws surrounding this deduction vary, so be sure to contact a tax attorney or a CPA for accurate details.
  1. Property Tax - New homeowners often don’t know that their property taxes are deductible. The amount that’s deducted is the amount paid by the property owner, including any payments made through an escrow account at settlement or closing. Some people pay their property taxes through an escrow account included with their mortgage payments. In this case, the amount that can be deducted is the amount that the lender actually paid for property taxes from the escrow account.
  1. Private Mortgage Insurance (PMI) – If your down payment is less than 20% of the purchase price of your home, you are often required to pay premiums for PMI, which your lender takes out to protect against your potential default. This premium is tax deductible in most cases. If your lender required this it should be on your 1098 Form you receive from your lender every year.

  1. Energy Efficient Upgrades – Homeowners can deduct the cost of the building materials used for energy efficiency upgrades to their home. 10% of the total bill for energy-efficient materials can be used as a tax credit, up to a maximum $500 credit. These materials include insulation, doors and new roofs. However, some items have individual limits, such as $150 for furnaces, $200 for windows, and $300 for air conditioners and heat pumps.

Always remember, when doing your taxes it is important to seek professional advice and counsel. The information provided here is for general use and not meant as expert recommendation. To know what is acceptable in your state or county ask a tax professional or CPA.

 


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