7 Credits, Deductions & Tax Benefits to Bundle With Your Mortgage

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Oh yeah, the other cool thing about home ownership – in addition to the ownership part – are the associated deductibles you can take against your income. 

Here are seven of them…

1. Mortgage Interest

If you itemize your deductions for tax purposes, using Schedule A of your federal income tax return, you can deduct any mortgage interest that you’ve paid over the course of the year (up to $1,000,000 of qualified mortgage indebtedness). This applies to any sort of “home acquisition debt” – i.e., a loan used to buy, build or improve your home.

2. Home Equity Deduction

When you take out a home equity loan or line of credit secured by your home, you’re generally allowed to deduct interest from that, too. The amount is limited to the lesser of…

  • The fair market value of the home minus the total home acquisition debt on that home

Or,

  • $100,000 ($50,000 if your filing status is married filing separately)

3. Mortgage Insurance

Provided that a.) your insurance is associated with home acquisition debt and b.) your Adjusted Gross Income is less than $100,000, you can deduct it. This applies to mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, the Rural Housing Service, and qualified private mortgage insurance (PMI) providers.

4. Real Estate Property Taxes

By itemizing deductions on your Schedule A, you can generally deduct real estate taxes. If they’re handled through an escrow account, you can only deduct what was actually paid by your lender.

5. Closing costs

When you take out a loan to buy a home or refinance an existing loan, you’ll be charged closing costs – basically, administrative fees for attorneys, titles, appraisals, document preparation and more. All of these fees are deductible, unless they’ve already been tabulated into the overall cost of the loan.

6. Energy tax credits

These are available to you for making energy-efficient improvements to your home, including eco-friendly windows, skylights, exterior doors, insulation materials and roofing.

7. Exclusion of capital gains

If you sell your house at a loss, you won’t be able to deduct that amount from your tax return. But sell your house (used as your primary residence) at a gain and you might be able to exclude some or all of it.

There are many factors to consider before purchasing a home. Tax is just one of them. Run the numbers to see if home ownership makes sense for you, or if you’re better off renting until the market leans in your favor. 

Also bear in mind that if you’re subject to the alternative minimum tax (AMT) in a given year, your mortgage interest and real estate tax deductions may be limited. Consult a tax professional for details.