Among the many benefits of home ownership are the tax write-offs, also called deductions. You may itemize deductions at tax time or take the IRS' standard homeowner deduction, but you can't do both. Your particular income and tax situation is the determining factor to itemize or take the standard deduction, so it pays to consult your accountant or study the mind-numbing IRS homeowner deduction laws yourself. Most people will choose the former.
Real Estate Taxes
Real estate property taxes can be deducted in most cases based on Internal Revenue Service guidelines. If you just moved, you may only deduct the portion of taxes for the remainder of the tax year, since the former owner is responsible for payment prior to the closing. Future taxes that are placed in escrow for the following tax year are not deductible in the current year, so you'll have to wait until the next tax return to write those off.
Mortgage interest is almost always tax deductible, even with multiple mortgages -- as long as they don't total more than $1 million. Over that amount, your deduction may be less. If you refinanced or took out a mortgage for other reasons than to buy, build or do home improvements, your interest deduction may also be limited. So if you're thinking of taking out an equity mortgage to purchase a new Porsche, you probably won't be able to write the interest for that one off.
Private Mortgage Insurance Premiums
You can deduct private mortgage insurance premiums, but only for mortgages originating from 2009 on. For qualified mortgage insurance issued by the Veterans Administration, Federal Housing Administration or the Rural Housing Administration, deductions are allowed on payments allocated to the shorter of two terms; the original term of the mortgage, or 84 months starting with the month the insurance was issued. These allocation terms don't apply to insurance issued by the Department of Veterans Affairs or the Rural Housing Service.
Points are deductible in many cases especially if the mortgage is for your main home, but there are certain IRS conditions best left to your accountant to decide. If you do not qualify, points must be deducted over the life of the loan. Other possible deductions include land rent, state or government energy efficiency credits when available, and some forms of home acquisition debt if the mortgage is more than the current value of the home you are purchasing. You may qualify for other deductions, so once again it pays to employ a tax professional.
If you have a legitimate office in your home that qualifies under IRS guidelines, you may deduct costs associated with the portion used exclusively for business. This includes improvements and portions of utility costs.
- house image by Cora Reed from Fotolia.com