Tips on getting the home tax deductions you’re entitled to
Taxes can be difficult for even seasoned homeowners to understand. With new tax legislation that was passed on December 22, 2017, there may be changes to the taxes you file this year. The following tips can help ensure you’re filing for and receiving all of the home-related tax deductions you’re entitled to.
1. Mortgage Interest Deduction
The Mortgage Interest Deduction can be used by itemizing using Schedule A. To qualify, the mortgage must be secured by either your primary or secondary home; homes, trailers, boats, and RVs can all qualify as long as they have a sleeping area, cooking area, and bathroom.
Interest on mortgages up to $1 million, or up to $500,000 for married couples filing separately, can be deducted. Likewise, if you have an additional loan such as a second mortgage, home equity line of credit, or home equity loan, the additional interest is still deductible up to a total amount of $1 million on all home loans.
While it will not affect your filing this year, beginning in tax year 2018 the mortgage interest deduction cap will be $750,000. The accompanying increase in the standard deduction may make it more worthwhile for homeowners not to itemize in the future.
2. Prepaid Interest Deduction
If you bought a home during 2017, the interest – or points – you prepaid may be 100% deductible along with the mortgage interest deduction. Prepaid interest deductions are also reported using Schedule A; your lender will provide you with a form 1098 that details the amount paid either when closing the mortgage or after refinancing.
Homeowners who refinanced their mortgage for home improvements can also deduct the points they paid at that time. If a mortgage was refinanced and used for another purpose, such as college tuition, those points can be deducted over the life of the mortgage.
3. Property Tax Deduction
Property taxes can be deducted each year on Schedule A. If your taxes are paid by your lender through an escrow account, the amount will be reported on an annual escrow statement. Likewise, if you purchased your home this year any property taxes paid upon closing can also be deducted.
4. PMI and FHA Premiums
New loans that were taken out in 2017 can have their PMI premiums deducted on Schedule A. This only applies if the adjusted gross income is less than $100,000, or $50,000 each for married couples filing separately. FHA, VA, and Rural Housing Service premiums may also be able to be deducted. However, this process is more complicated; a tax professional is your best resource for finding out how to deduct this premiums.
5. Vacation Home Tax Deductions
Deductions on a second home depend on how it is used. If you are the primary resident of your second home (it is not rented out for more than 14 days each year), mortgage interest and real estate taxes can be deducted using schedule A. If your second home is primarily used as a vacation rental (you use it for fewer than 15 days or less than 10% of total rent days), your expenses can be deducted on Schedule E.