Tax Time Tips for Mortgage Holders
Below is a MRR and PLR article in category Finance -> subcategory Taxes.
Tax Time Tips for Mortgage Holders
Introduction
As tax season rolls around, forms like 1040, W-2, and INT-1099 start to appear on our radar. If you have a mortgage, you have the opportunity to claim certain deductions that can lighten your tax load. Let’s explore some key areas where you can make the most of these deductions and hold on to more of your hard-earned money.
Mortgage Interest Deduction
One of the primary perks for mortgage holders is the ability to deduct the interest paid on your primary residence. If your mortgage balance is under $1 million, you can use Schedule A, which covers "itemized deductions," to claim all the interest paid in the previous year. This deduction applies solely to your primary residence and not to any rental or additional properties. Additionally, if you paid off your mortgage and faced a pre-payment penalty, those fees can also be deducted via Schedule A.
Property Taxes
Property taxes or real estate taxes paid to local governments are deductible as well. If your lender manages your taxes through an escrow account, the deductible amount will be listed there. Otherwise, refer to your local tax authority's assessment notice.
Home Equity Loan Interest
If you've taken out a home equity loan for home improvements, you might be eligible to deduct the interest. However, be aware that if the total of your mortgage and home equity loan exceeds your home's market value, there are limitations on what you can deduct.
Deducting Points
Points paid on mortgages can usually be deducted. If you refinanced last year, any points paid to reduce the mortgage rate are deductible over the life of the loan. For example, on a 20-year mortgage, you can deduct 1/20th of the points each year. An advantage comes if you’ve refinanced more than once: any undeducted points from a previous loan can be written off when that loan is fully paid. If your mortgage was new in the past year, the points paid on the purchase are fully deductible if it's your primary residence and if you paid a down payment at least equal to the points charged. This area can be complex, so consulting a tax preparer is wise.
Conclusion
This tax season, make sure you’re leveraging every available deduction. Owning a home and having a mortgage offers specific tax benefits, so ensure you’re not leaving money on the table. Use these deductions to potentially pay off your mortgage faster. Don’t let the IRS keep what’s rightfully yours!
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