. Deduct Your Mortgage and incur a prepayment penalty,
Interest you can deduct that penalty as
home mortgage interest. This is
Usually, the mortgage interest on subject to the same requirements
your home is completely for late payments.
tax-deductible. And you can
deduct interest on multiple 2. Deduct Your Real Estate Taxes
mortgages. Just make sure they do
not exceed $1 million. The Real estate taxes are the annual
purpose of the mortgage must be taxes based on the assessed value
specifically to buy, build or of a property. They are also
improve a home. tax-deductible. Your interest
statement may list the amount of
Your lender will send you a “Form real estate taxes you paid if
1098.” This form shows exactly your taxes and homeowners'
how much mortgage interest you insurance were placed in an
paid for the year. To claim this escrow account when you closed on
deduction, fill out Schedule A your mortgage. It’s possible that
(it’s labeled “itemized your real estate taxes are not
deductions”) and record your included on the statement. In
interest deduction. that case, review your cancelled
checks to determine your total
You can also deduct late payment real estate tax amount.
charges as home mortgage
interest. Just make sure it is 3. Deduct Your Loan Points Paid
not for specific services on a Purchase
received in connection with your
home loan. The same is true for The points you pay on a purchase
mortgage prepayment penalties: if mortgage are deductible the year
you pay off your mortgage early you made the purchase. Deduct any
points you paid — and that a When a seller pays points for the
seller paid on your behalf — if buyer (buys the mortgage rate
you meet the following criteria: down) the buyer gets a lower
mortgage rate. The cost of those
• The loan is secured by your points is then deductible for the
primary residence. And, the loan buyer.
was used to buy, improve or build
the home. 4. Deduct Your Loan Points Paid
on a Refinance
• Make sure that paying points
(and the amount of points paid) Did you refinance last year? If
is not an irregular practice in so, you may be able to write-off
the seller's geographic area. any points you paid to buy down
the mortgage rate. Deduct the
• Be certain the points are points proportionately over the
computed as a percentage of the life of the new loan. An example:
loan principal. if you took out a 30-year loan,
you would deduct 1/30th of the
• The points must be clearly points you paid each year.
delineated on the buyer's
settlement statement. 5. Have You Refinanced More Than
Once in Recent Years?
• You put cash into your home
purchase in an amount at least Many homeowners have overlooked
equal to the points you were this very important deduction: if
charged. you have refinanced more than
once, deduct unclaimed points
- Seller-Paid Points are from an earlier refinance. Say
Deductible by the Buyer you refinanced in 2004, and you
paid points. You deducted 1/30th
of those points in 2004 and 2005. loan? It may be tax-deductible up
But the rates continued to drop, to $100,000. But if the combined
so you refinanced again in 2006, amount of your home equity loan
and you paid off the 2004 loan. and your first mortgage totals
What about the remaining points more than the property's actual
you have yet to deduct? These value, that deduction may be
points are fully deducted in limited. You can usually deduct
2006. This same deduction is the lesser of the interest on a
available to you if you sold the $100,000 loan or your home's
house in 2006, rather than value less the amount of your
refinancing. first mortgage.
6. Deduct Your Interest on a Home Please check with your tax
Equity Loan advisor to determine which of
these deductions applies to you!
That interest on a home equity
About the Author:
Matt Schaub and Silas Ellman started ReallyGreatRate with a simple idea: give every consumer the speed and convenience of online loan service, while providing the most personalized financial solutions available. For more free info, go to Mortgage Loans
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