Your home is a source of tax deductions. But every year, Americans let these potential tax deductions slip away not knowing how to take advantage of them. Tax Information for Homeowners outlines the deductions you can take for the 2015 tax year. Important tax benefits are listed below.
Your Mortgage Interest
This will probably be the largest home-related tax deduction you can take except a home purchase. Interest payments are deductible on either primary or secondary homes, up to $1 million in collective mortgage debt if you are married and filing jointly. The limit is 50% for single filers or married couples filing separately.
The mortgage interest deduction applies to any property defined as a basic living space that you own. Condominiums, mobile homes, and even some boats are to be included assuming that they meet the living space definition – at least one sleeping area, a kitchen, and a toilet. More details on this can be found in Home Mortgage Interest Deduction.
Points Paid at Closing
Points that were paid by you at closing to lower the interest rate on your mortgage are deductible. Usually, the deductions have to be amortized over the life of the mortgage, but there are certain times when you might be able to deduct the whole amount of your points paid in the year of purchase. See Tax Information for Homeowners for more details.
Real Estate Property Taxes
Real estate taxes are deductible if they are assessed uniformly. This means they are not taxes that reflect a special privilege or a service granted to you. The associated property taxes with the purchase of a house can also be deducted.
The Mortgage Interest Credit
Normally, mortgage interest is used as a deduction. However, if you are considered low-income, the mortgage interest can be claimed as a credit instead. This is taken from the total cost, directly from your tax bill, not from your taxable income being used to determine your tax bill. To get this credit, you have to receive a qualified Mortgage Credit Certificate from an appropriate state or local agency. File Form 8396 in addition to your tax form to claim this credit.
Loans for Home Equity
Borrowing against your home equity, either with a loan or a line of credit: the interest might be deductible. Nevertheless, it depends on how the loan is used, how much the loan is for, and how much the loan is worth.
When a short sale is accepted by a bank for less than the value of a particular home and forgives the rest of the debt, the debt is usually considered as taxable income. In 2007, the Mortgage Forgiveness Debt Relief Act was created by Congress to reclassify the forgiven debt as non-taxable income, saving the stressed homeowners from a humungous tax burden. This tax relief measure is still in effect temporarily.
In 2015, the Mortgage Forgiveness Debt Relief Act was extended in 2015 at the last minute to cover mortgage debt canceled through the end of 2016. Debts canceled in 2015 (The ones that apply to the 2015 tax year) are covered retroactively also. Consult with your CPA or tax preparer to make sure you’re not missing out.
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