Tax Benefits of Home Mortgages
Individuals with home mortgages can usually enjoy substantial deductions on their annual income tax returns. If you're considering a home purchase, a mortgage refinance or a home equity loan, you should understand the mortgage tax benefits that may be available to you.
Mortgage Tax Benefits: First Time Home Buyers
If you're considering your first home purchase, there is great news for you: The U.S. government and most state governments allow you to deduct property taxes and mortgage interest on your income tax return. Upon closing, points paid on your new loan are usually tax-deductible as well. Be sure to check with your state franchise tax board, since some regions even offer special incentives and tax breaks for first time buyers.
Tax Benefits of a Mortgage Refinance
Homeowners interested in a mortgage refinance may enjoy many of the same benefits. However, the process of deducting points will differ slightly. With a mortgage refinance, the amount of your loan origination fee is amortized, or spread over the life of your new mortgage, instead of being deducted in a single lump. If you sell your refinanced home before this amortization period ends, the IRS usually allows you to deduct the remaining portion of your points anyway. Please consult with your tax advisor for more details.
Tax Benefits of Home Equity Loans
Home mortgages based on your home equity can also mean big tax rewards. The interest paid on a home equity loan (second mortgage) or line of credit (HELOC) loan is generally tax-deductible, up to a certain amount. Let's say you use a home equity loan to renovate your kitchen or add a new deck, and you pay sales tax on related purchases. You may also be able to deduct the amount of tax paid. In other words, home equity loans used to enhance your home's value can also enhance the value of your wallet. Please consult with your tax advisor for more details.
Mortgage Advice: Be Prepared!
Before making any serious financial decisions, such as applying for any of these home mortgages, be sure to consult your tax advisor. You'll also want to keep your paperwork up-to-date and organized, so that all your information is handy at tax time. Retain receipts from purchases related to home improvements, as well as monthly mortgage statements.
For more information, visit the Internal Revenue Service's website for more information on home mortgage tax benefits.
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