When you purchase a home and get a mortgage, or refinance an existing home loan, some of the mortgage fees are tax deductible. This is good news if you and your partner have been renting for years. You can enter these mortgage-related costs on Schedule A, Form 1040 under the "Interest You Paid" section on your tax return. The deduction applies only if you choose to itemize deductions.
The interest fees you pay to your mortgage company are tax deductible. Your mortgage company sends a statement at the beginning of each year called Form 1098 that lists the amount of interest you paid for the previous year. If you just purchased the home or refinanced, the amount you can deduct includes any prepaid interest that you paid at closing. The interest on a second mortgage or home equity loan can also be deducted.
You may have paid one or more percentage points at closing when you purchased your new home or refinanced your existing one. A point is 1 percent of the amount you borrow. You can deduct this cost on your Schedule A form along with mortgage interest expense. Information about the points you paid is commonly recorded on the Form 1098 sent by the mortgage company.
Some lenders require you to pay mortgage insurance premiums along with your mortgage payments. This is common for borrowers who put less than 20 percent down when they close their mortgage loans. You can deduct the cost of these mortgage insurance premiums on your taxes in some cases — the deductible amount may be limited depending on your income. If your adjusted gross income exceeds $109,000 as of 2009, or $54,500 for people who file as "married filing separately," then you cannot deduct mortgage insurance premiums.
You can also deduct interest on a mortgage loan for property that you hold for investment purposes. Investment property is property that you use to generate income. You must actively participate in these investment activities. To deduct these interest costs, fill out IRS Form 4952 first to determine the total amount of the deduction before transferring the amount to your Schedule A form.
- Tax Deduction for a Home Mortgage
- Is Mortgage Interest an Itemized Deduction?
- Refinance & Tax Implications
- What Can You Write Off on Your Investment House When You Sell?
- Are Mortgage Discount Points Tax Deductible?
- How to Calculate Mortgage Interest Tax Deductions
- Can I Use HUD-1 for Deductions?
- Mortgage Interest As a Tax Deduction