Tax Benefits of Mortgages

Home ownership provides numerous advantages which you may have already considered, but did you know there are tax advantages as well?

Homeowner Tax Benefits

Deducting Interest

The interest you pay on your mortgage is tax deductible. This is especially valuable early in the life of your loan as the bulk of your payment will be applied to interest. This also applies to equity debts, so if you got a cash-out refinance or home equity line of credit, you can deduct that interest as well. Mortgage interest on second homes and other properties is also deductible!

Property Taxes

Part of your monthly mortgage payment is property tax. These can be deducted from your income tax return as long as you own your home. (In the first year you own your property, the tax cost will be split with the previous owner, for the time they spent in the home).

Points

If you have a fixed-rate mortgage and paid points to obtain a better interest rate, you can deduct the points you paid for the year in which you paid them, if the loan was used for your primary residence. If you refinanced or took out a home equity line of credit, you may also be able to deduct. Consult your tax advisor for more information.

Consult Your Tax Advisor

Ultimately you should consult with a qualified tax professional to determine which deductions are available to you based on your personal situation. Taking these deductions will make preparing your taxes more involved, as you will now have to use a Schedule A for itemized deductions if you weren’t doing so already. But the opportunity to reduce your taxable income should make it worthwhile.