Deductions for owning a home could pay off at tax time
Tax time is here again, and being a homeowner could pay off when you get ready to file. There are several homeownership-related tax deductions and strategies that can lower your tax bill. Below are some strategies, found at www.houselogic.com, that you’ll want talk to your tax preparer about.
• Mortgage-interest deduction: One of the neatest deductions that itemizing homeowners can take advantage of is the mortgage-interest deduction, which you claim on Schedule A. To get the mortgage-interest deduction, your mortgage must be secured by the home itself — and that home can be a house, a trailer or a boat, as long as you can sleep in it and cook in it, and it has a toilet.
• Prepaid interest deduction: Prepaid interest (or points) you paid when you took out your mortgage is generally 100 percent deductible in the year you paid it, along with other mortgage interest.
• Property-tax deduction: The real estate property taxes you pay can be deducted on Schedule A. If you have a mortgage with an escrow account, the amount of real estate property taxes you paid shows up on your annual escrow statement.
If you bought a house this year, check your HUD-1 settlement statement to see if you paid any property taxes when you closed the purchase of your house. Those taxes are also deductible on Schedule A.
• PMI and FHA mortgage-insurance premiums:
You can deduct the cost of private mortgage insurance (PMI) as mortgage interest on Schedule A if you itemize your return. The change only applies to loans taken out in 2007 or later.
There are several homeownership-related tax deductions and strategies that can lower your tax bill, from mortgage-interest deductions to energy-efficient upgrades.”
What’s PMI? If you have a mortgage but didn’t put down a fairly good-sized down payment (usually 20 percent), the lender requires that the mortgage be insured. The premium on that insurance can be deducted, as long as your annual income is less than $100,000 (or $50,000 if your status is “married, filing separately”).
• Vacation-home tax deductions: The rules on tax deductions for vacation homes are complicated. Do yourself a favor, and keep good records on how and when you use your vacation home.
• Homebuyer tax credit: This isn’t a deduction, but it’s important to keep track of if you claimed it in 2008.
Federal first-time-homebuyer tax credits were offered in 2008, 2009 and 2010. If you claimed the homebuyer tax credit for a purchase made after April 8, 2008, and before Jan. 1, 2009, you must repay 1/15th of the credit over 15 years, with no interest.
• Energy-efficiency upgrades: The Nonbusiness Energy Tax Credit lets you claim a credit for installing energyefficient home systems. Tax credits are especially valuable because they let you offset what you owe the IRS dollar for dollar, in this case for up to 10 percent of the amount you spent on certain upgrades. File IRS Form 5695 with your return.
For more information about each of the deductions and credits noted above, visit www.houselogic.com/home-advice/taxdeductions/home-tax-deductions.
House to House is distributed by the Arkansas Realtors Association. For more information about homeownership in Arkansas, visit www.ArkansasRealtors.com.