Home loan and mortgage tax tips can save you money

Mortgage interest tax deduction is just one of many benefits of owning a home

Home owners have long been told that a benefit of buying a house is that the interest on a mortgage is tax deductible. 

That’s true, though not all homeowners benefit from that deduction. Only those who itemize are eligible, and sometimes the benefit from the standard deduction outweighs or cancels out the mortgage interest deduction. Sill, many people, including those who earn in the higher tax brackets, do realize some benefit from the deduction, which applies on home loans of up to $1 million. 

There are other tax breaks that can help those who own homes, and we’ll point a few of them out here:

• Points are deductible. “Points” are a term that really describes any of a number of fees added to a mortgage at closing. A point is equal to one percent of the amount of the loan and these are often added profit for the lender. Points may be called “loan origination fees” or they may simply be a fee charged for lowering the loan’s interest rate. Regardless of what they are called, points are deductible from Federal income tax.
• Interest on home equity loans are also deductible, although the limit is much lower than for a primary mortgage. The current limit is $100,000, or the fair market value of the home, whichever is lower. This makes a home equity loan a very competitive way to borrow money, as the tax deduction effectively lowers the interest rate of the loan.
• Home improvement loans are also deductible. Separate from home equity loans, these would be loans that were made to “improve” the home - adding a room, building a larger garage or a pool or remodeling a kitchen.
• Work from home? You may deduct for use of a home office. The rules for this used to be fairly complicated, but the IRS has eased scrutiny in the past few years. Any home costs associated with that portion of your home that you use for business may be deducted from your taxes, including insurance and depreciation.
• Property taxes are tax deductible. At least there’s some benefit from paying them.
• A few years ago, Congress made a dramatic change to the capital gains tax, and homeowners who sell their homes are now eligible to keep $250,000 tax free (or $500,000 if married and filing jointly) when they sell a home that they have occupied for at least two of the previous five years. This is a tremendous change from the old policy, which allowed a $125,000 exemption only once in a lifetime.

There are numerous ways that homeowners can benefit from owning a home or having a mortgage at tax time. All it takes is good planning and a helpful tax preparer, who can point out these and other ways that one can get a bit of a break on income tax. The time devoted to this is clearly time well spent.