You did it! You found the perfect home, navigated the mortgage process, and now it’s all yours. And whether this is your first house or your fifth, you probably have some questions about what this new purchase will mean for your taxes. Let’s answer some of the most common ones.
What is the mortgage interest deduction?
Believe it or not, every penny of interest you pay on your mortgage is tax deductible! That means that if, say, $800 of your monthly mortgage payment goes to interest each month, you can deduct $800 x 12 for the year = a whopping $9,600! ?And since a larger percentage of your first mortgage payments go towards interest than later ones, your first years will get you an even bigger deduction.
What about the prepaid interest points I paid at closing?
Those are deductible, too! Save your closing statement, because there are several expenses listed there that can be deducted. However, keep in mind that not all closing costs are deductible.
How about my mortgage insurance premiums?
These can also be deducted from your taxes! While PMI, or private mortgage insurance, does make your monthly payments higher, it pays off in the form of more to deduct at tax time – which can mean a bigger refund for you!
What is the real estate tax deduction?
Owning a home means paying property taxes each year – but these are deductible from your income taxes each year, as well.
Does home ownership affect my taxes in other ways?
Because you can now claim the mortgage interest deduction and the real estate tax deduction, you might just have enough deductions that itemizing makes sense. If so, you may want to start including your charitable donations in your deductions as well, since they’ll now count towards your refund.
What is the energy credit?
If you spend money upgrading your new home in order to make it more energy efficient – whether that means buying new appliances, installing new windows, or adding insulation – you may be able to claim the energy credit, which caps out at $500.
What if I sold my home in order to buy this new one?
Luckily, you’re most likely exempt from taxes on the gains from selling your main home for up to $250,000, and $500,000 if you’re married filing jointly. Keeping track of any improvements you made to the home, as well as the costs of selling it and buying a new one, will allow you to determine your gain and apply the exemption correctly.
Home ownership is definitely beneficial to your taxes – with all these new deductions and credits, you may just get your biggest refund yet. In order to make sure you take advantage of every one, file your taxes with E-file. We guide home owners through the process of filing their taxes using a series of simple questions, to ensure they don’t miss out on a single cent that’s coming to them.