Nowadays, everyone is looking for ways to save money during the financial crisis that has been affecting the entire nation. Homeowners in particular are able to take advantage of several tax deductions that may lessen the financial crunch this year and in the years ahead. Among these are mortgage interest, points, and property taxes, all of which are tax deductible. These deductions may prove to be a great help to first-time home buyers, who may think owning a home is too expensive or overwhelming. They may also prove beneficial to current homeowners who are not familiar with them. In either case, it is important to consult a tax professional to make sure these deductions apply to you, and it is also important to understand that they only apply if you are itemizing your deductions.
Mortgage Interest
Those with relatively new home mortgages will learn from the amortization schedule in their closing packet that the bulk of their monthly mortgage payment in the early stages of their loan repayment schedule is paying off mortgage interest rather than the loan principal. As time goes on, this distribution will reverse, and most of the payment will go to the principal and less to interest. However, if you are a long way away from paying off your mortgage, chances are you are yet to reach this breakeven point, and so you will have much interest to deduct. Fortunately, mortgage interest on a second home or second mortgage is also tax deductible.
Points
If you paid points during a refinance or purchase, you can deduct them in the year you paid for them. There are a few conditions to these deductions, however, such as the requirement of the loan to go to buying or building your main home and the requirement of buying points to be common practice in your particular area. Points purchased from using the money received from getting a home equity line of credit are also tax deductible.
Property Taxes
When the value of your property goes down, it is important to make sure you are not being overcharged on your taxes. Once you determine that you are being taxed correctly, you can also deduct these taxes on your returns. It's a good idea to get an annual statement from your lender, which will state how much of the monthly payment goes to paying property taxes.
All three of these tax deductions can prove extremely beneficial for any homeowner looking to save money and alleviate financial distress.
By: Moisés Reyes
