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Home Mortgage Interest Tax

There are a number of tax advantages to taking out a home mortgage. The most obvious of these advantages is that home mortgage interest is tax deductible.

This means that the Internal Revenue Service will decrease your income tax by the amount of interest you pay on your home mortgage. Every home owner should always list the amount of mortgage interest on their tax return in order to claim this deduction.

In some cases all of the mortgage interest is deductible but in others only a portion will be deductible. Even if only a portion of mortgage interest is deductible it will lower your income tax burden.

There are a number of other tax benefits a person can get from a home mortgage. It may even be possible to reduce your tax burden by several hundred dollars if you have a home mortgage.

Mortgage insurance premiums 

Qualified mortgage insurance premiums maybe treated as deductible mortgage interest by the IRS. The IRS will deduct the cost of mortgage insurance premiums from on certain mortgages.

The way to tell if your mortgage insurance is deductible is to check with the IRS or your tax preparer. Tax software might also be able to tell you if your mortgage insurance is deductible.

Points

The Internal Revenue Service considers certain up front charges paid when you open a mortgage deductible. These are called points and each one can lead to a deduction equal to 1% of your mortgage finance amount.

You can deduct points from your taxes if the mortgage is taken out for purchase of your home. The points must be computed as a percentage of the mortgage principal and charging such points must be standard practice in your mortgage.

You can determine whether or not you can deduct points by consulting the IRS or your tax preparer. Tax software might also be able to tell you if you can deduct points on your mortgage or not. Points accrued in refinancing your home are not deductible.

State and local taxes

The tax laws in every state are different so there maybe state and local tax deductions available as well. In states which charge income tax, it maybe possible to deduct your mortgage interest from your state income tax.

You will have to consult your state government or tax preparer to find out if this is possible. Tax software designed for specific states may also be to tell you if you qualify for this deduction.

Another thing to remember is that state and local real estate taxes are deductible. Always list any amount of local real estate tax you pay on your home on your taxes because it will reduce your tax burden.

Special Tax Credits

The federal government sometimes makes special tax credits available to home owners. These credits are usually issued on a yearly basis but they could several thousand dollars on your taxes. Always enquiry about these special credits to see if you might qualify for additional tax deductions when you purchase a home or refinance your mortgage.