Tax deductions ease the burden of home ownership

Tax deductions help make homes more affordable

The costs of owning a home are high; recent surveys show that in certain markets it may even be cheaper to rent. But renting doesn’t offer the benefits of owning your own house; you will always know that you are living on someone else’s property. When you own your home, you can repaint if you like, replace the windows, add a room, or do any one of a number of other things that you cannot do if you rent. The government has provided a few tax breaks to those who actually buy houses. While they do not significantly affect the price of home ownership, they do help a bit. 

Here are a few deductions that are available to homeowners who itemize on their tax returns:

• Mortgage interest - This is the big one, and the only one most people can name. The interest that you pay on your mortgage is fully deductible from your taxable income. Your lender should send you a document outlining how much you paid in interest last year. Show that to your tax preparer. For many Americans, this amount is offset by the standard deduction, making the mortgage interest tax deduction somewhat of an overrated perk of ownership.
• Points paid at closing - Fees such as “loan origination fees” are technically known as “points” where each point represents one percent of the loan amount. These fees are often deductible. Keep copies of your closing documents for proof, as your lender may or many not have sent you documentation that lists these fees.
• Refinancing fees - These fees are deductible over the life of the mortgage. If you have refinanced a second time, undeducted costs from the previous refinancing may be deductible in full. For more information, see your tax preparer.
• Mortgage prepayment penalties - Some loans have penalties to the homeowner if he or she pays off the loan early. These penalties may be deductible if you sold or refinanced the mortgage last year.
• Moving costs - Did you move? Your moving costs may be deductible if the commute from your old house to your new job is at least 50 miles farther than it was before. Obviously, these costs are not deductible if your employer paid for the cost of your move.
• Uninsured damage - Fire? Flood? Tornado? Any damages not covered by your homeowner’s insurance may be tax deductible. There are limitations; see your tax preparer for details. There are also special benefits for victims of Hurricane Katrina and other recent hurricanes. The Internal Revenue service has details.
• Prepaid mortgage interest and property taxes - If you paid any of your mortgage payments or property taxes for 2006 in 2005, they are deductible in 2005. There is some benefit in paying your taxes early.

There are additional tax breaks for homeowners, such as rent deduction of your home is on rented land. For full details, you should consult your tax preparer, who will probably be sufficiently familiar with tax laws, which can change dramatically from year to year. For additional information, you may wish to visit the Web site of the Internal Revenue Service.