Tax time is right around the corner, and if you’re a homeowner, you may be entitled to certain tax benefits and deductions. Below, you’ll find a partial list of some of these tax advantages.
You can usually deduct the interest you pay on your primary home’s mortgage, or a second home mortgage. But what is mortgage interest? It’s any interest you pay on a loan secured by your main home or your second home, including a purchase mortgage, a second mortgage, or a home equity loan or line of credit. The key is, the loan must be secured by the home in order to be eligible for a mortgage interest deduction. There may be certain limits placed on these deductions; for more information, see IRS Publication 936, Home Mortgage Interest Deduction, and consult your tax advisor for details.
You may be able to get a tax benefit out of any money you’ve spent fixing up your home. While you generally can not deduct the costs of home repairs within the same year you paid for them, make sure you track all such expenses over the years. When the time comes to sell your home, if you make a profit, you may be able to deduct the total spent from any capital gain, thus lowering the capital gains taxes you may owe. Consult your tax advisor for possible limitations on this deduction.
In addition to deducting mortgage interest, points paid on home mortgage purchase loan are also usually tax deductible. Please note: points paid on a mortgage refinance loan are not completely deductible in the year they are paid. Instead, they are deducted over the life of the loan. Please see IRS Publication 936, Home Mortgage Interest Deduction, and consult your tax advisor for more details.
Any real estate taxes you pay on your home are also generally tax deductible. (Consult your tax advisor for details)
What can you deduct if your second home is considered rental property?
A partial list of deductions might include advertising, cleaning and maintenance, insurance premiums, depreciation, interest expenses, local property taxes, repairs, supplies, and more. Consult your tax advisor for a full list of possible rental property tax deductions.
Now that we’ve covered the possible tax benefits of homeownership, what are some of the expenses you can’t deduct? Here is a partial list:
- Homeowners’ Association dues
- Title or mortgage insurance
- FHA mortgage insurance premiums
- The principal portion of your mortgage payments
- Fire insurance
Remember, these are only general guidelines, to get you started. To take full advantage of the tax advantages of owning a home, be sure to consult a qualified tax advisor for guidance.