Real Estate Tax Deductions You Can Take Advantage Of!
Mortgage Interest Deduction
One of the tax deductions home owners can take advantage of is the mortgage interest deduction. To get the mortgage interest deduction, your mortgage must be secured by your home – and your home can be a house, trailer, or boat, as long as you can sleep in it, cook in it, and it has a toilet. Interest you pay on a mortgage of up to $1 million (or $500,000 if you’re married filing separately) is deductible when you use the loan to buy, build, or improve your home.
If you take on another mortgage (including a second mortgage, home equity loan, or home equity line of credit) to improve your home or to buy or build a second home, that counts towards the $1 million limit.
Prepaid Interest Deduction
Prepaid interest (or points) you paid when you took out your mortgage is generally 100% deductible in the year you paid it along with other mortgage interest.
If you refinance your mortgage and use that money for home improvements, any points you pay are also deductible in the same year. If you refinance to get a better rate or shorten the length of your mortgage, or to use the money for something other than home improvements, such as college tuition, you’ll need to deduct the points over the life of the mortgage. If you refinance into a 10-year mortgage and pay $3,000 in points, you can deduct $300 per year for 10 years.
Your lender will send you a Form 1098 that lists the points you paid. If not, you should be able to find the amount listed on the HUD-1 (if you closed on your home prior to October 2015) or on your Closing Disclosure (if you closed on your home after September 2015).
Property Tax Deduction
You can deduct the real estate property taxes you pay If you have a mortgage with an escrow account, the amount of real estate property taxes you paid shows up on your annual escrow statement.
If you bought your house this year, check your HUD-1 Settlement Statement (if you closed on your home prior to October 2015) or your Closing Disclosure (if you closed on your home after September 2015).
PMI and FHA Mortgage Insurance Premiums
You can deduct the cost of private mortgage insurance (PMI) as mortgage interest if you itemize your tax return. This only applies to loans taken out in 2007 or later.
What is PMI? If you have a mortgage but didn’t put down a fairly good-sized down payment (usually 20%), the lender requires the mortgage be insured. The premium on that insurance can be deducted, so long as your income is less than $100,000 (or $50,000 if you are married filing separately).
Besides private mortgage insurance, there is government insurance from FHA, VA and the Rural Housing Service. Some of those premiums are paid at closing, and deducting them is complicated. A tax advisor or tax software program can help you calculate this deduction. Also, the rules vary between the agencies.
Vacation Home Tax Deductions
The rules on tax deductions for vacation homes are complicated. Do yourself a favor and keep good records about how and when you use your vacation home.
- If you are the only one using your vacation (and you don’t rent it out for more than 14 days a year), you can deduct mortgage interest and real estate taxes.
- If you rent your vacation home out for more than 14 days and use it yourself fewer than 15 days, and it is treated like a rental property.
- If you rent your home for part of the year and use it yourself for more than 15 days, you have to keep track of income, expenses and allocate them based on how often you used and how often you rented the home.
Energy Efficiency Upgrades
The Nonbusiness Energy Tax Credit lets you claim a credit for installing energy efficient home systems. Tax credits are especially valuable because they let you offset what you owe the IRS dollar for dollar for up to 10% of the amount you spent on certain upgrades.
The credit caries a lifetime cap of $500 (less for some products), so if you’ve used it in years past, you’ll have to subtract prior tax credits from that $500 limit. Lucky for you, there’s no cap on how much you’ll save on utility bills thanks to your energy efficiency upgrades!
Among the upgrades that might qualify for the credit:
- Biomass stoves
- Heating, ventilation, and air conditioning
- Roofs (Metal and asphalt)
- Water heaters (non-solar)
- Windows, Doors, and skylights
If you, or someone you know is looking to buy a home in the Holly Springs/ Triangle Area in North Carolina, call Team Anderson Realty today to find out how our team can help you with all of your real estate needs or visit our website to start your free home search today! If you are thinking of selling your Holly Springs/ Triangle Area home, give Erica a call at 919-610-5126 to discuss our unique marketing strategy that will get your home sold in today’s real estate market!