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Posted by Pat Raskob

Tax Deductions for Homeowners

Tax Deductions for Homeowners

Owning a home is one of the important life decisions that everyone needs to make. A home is a way to gather wealth, but downsides like mortgage, unexpected repairs, fees, and maintenance impair the thought. 

However, do not let tax be a problem by using some legal tax deduction means to keep tax returns as low as possible.

1. Mortgage Interest

If you owe a mortgage, the provider expects you to remit a certain amount each month and another for the interest. However, the law allows you to reduce up to $750,000 paid in mortgage interest as a single or married couple filing taxes jointly. Those married couples who go with the separate filing status can deduct up to $375,000 each. 

However, the law has some criteria. It states that homeowners between Oct 14, 1987, and Dec 15, 2017, can deduct up to $1 million. But the home should have been bought prior to Oct 14, 1987, and you can take all paid interest. 

2. Home-Equity-Loan Interest

A home equity loan is considered a second mortgage on a home. Homeowners with a home sky-worth over $350,000 owe about $300,000; the remaining $50,000 is considered equity. The interest accumulated on the mortgage is also tax deductible. 

However, there is no restriction on what you can use the cash for; the interest deducted form must be used for home improvement. Also, you are not eligible for additional home-equity loan deductions when you consume the maximum deductible amount of the mortgage interest. 

3. Discount Points

Discount points lower the interest rate accumulated on your mortgage. The cost of having one discount point is 1% of your mortgage, and it keeps dropping by 0.25%. For example, if you owe $200,000 on a mortgage with a discount point of 3.5%, and you paid $4,000, costing two points, that leaves you with 3% as the new interest rate. 

In addition, the money used for buying points is also tax-deductible till the loan is paid in full. However, there are some requirements that qualify you to enjoy fully deductible discount points for the year. Keep in mind that there is a wide gap between discount points and loan origination points. The fees paid to the loan provider to process the application are not tax-deferred.

4. Property Taxes

Homeowners face many expenses from state and local tax authorities. However, the IRS allows taxpayers to benefit up to $10,000 or $5 000 for married couples filing separately from a tax deduction on income, sales, and property taxes. The deduction is filed using a Schedule A form using the itemizing method to exceed the standard deduction filing. However, the privilege exempts transfer taxes, utility charges, and homeowners' contributions.

5. Private Mortgage Insurance (PMI)

Private mortgage insurance (PMI) is a charge imposed by the loan provider on borrowers who can only afford a one-time payment of less than 20% of the loan. Generally, lenders charge a monthly fee of $70 for every borrowed $100,000. Keep in mind that the PMI is for the lender's safety and not the homeowner's. The insurance covers the lender if you can't afford to pay. But the opportunity is up for grabs depending on when you bought the home and your income. 

However, the deduction has lapsed, making the premium undetectable for some years. Also, the opportunity was established back in the 2019 tax year after expiring in 2017. The law was also available in 2018, 2020, and 2021 tax years under the Consolidated Appropriations Act (CAA) of 2021. However, the deduction did not run in 2022, making it unavailable for taxpayers to deduct mortgage insurance premiums.



Pat Raskob
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