Posted: 07/01/2016

Purchasing a home is a big decision that can lead to big benefits. One aspect of those benefits is the tax breaks* that come along with the keys to the front door of your new home.

A first-time homebuyer may not know all of the tax benefits they have when it comes to deductions and write-offs. Here are five tax tips for home owners.

Real estate tax deduction

As a home owner, you may deduct real estate taxes that have been imposed on you. To qualify, you must have paid the taxes either at settlement or closing, or to a taxing authority (either directly or through an escrow account) during the year. The seller and the buyer typically pay real estate taxes. The buyer’s share of the taxes is fully deductible if deductions are itemized. The buyer pays the taxes beginning at the date that the home is sold and can deduct their share the year that the home is sold.

Mortgage interest deduction

Home mortgage interest is traditionally accepted as any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, a second mortgage, a line of credit or a home equity loan. As a buyer, you can deduct home mortgage interest if: you file Form 1040 and itemize deductions on Schedule A, and the mortgage is a secured debt on a qualified home in which you have an ownership interest. In most cases, all of your home mortgage interest can be deducted. However, the date of the mortgage, amount and how the funds were used play a factor in determining exactly how much can be deducted.

Private mortgage insurance deduction        

If you purchased private mortgage insurance when you bought your home, the premiums on that insurance are tax deductible. The amount that can be deducted is dependent on your adjusted gross income (if it is $100,000 or less, the total of your private mortgage insurance premiums can be deducted). This deduction option was recently extended through Dec. 31, 2016.

Home improvements deduction

As a home owner, you can fully deduct in the year paid points (charges by a borrower to obtain a mortgage) paid on a loan for improvements on your main residence if you meet the following criteria:

  • Your loan is secured by your main home.
  • Paying points is an established business practice in the area where the loan was made.
  • The points paid were not more than the points generally charged in that area.
  • You use the cash method of accounting (report income in the year you receive it and deduct expenses in the year you pay them).
  • The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees and property taxes.
  • The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged.

If you sell, you can get tax breaks

If you sell your home, you may be able to deduct points you paid to buy down your interest rate while you owned your home. You may also qualify for a moving expense write off if you are selling your home and moving for a new job. This could include gas mileage and moving supplies. There may be an opportunity for a Capital Gains Exclusion through the IRS and California Franchise Tax Board as well. You must have lived in the home for at least two years and the amount that can be excluded is dependent on whether you are single or married/file jointly. This exclusion can go all the way up to $500,000.

If you have questions about obtaining a home mortgage please feel free to reach out to us. At Guarantee Mortgage, we’re transparent from the very start of the home loan process.

* Please note: This information is for information purposes only. Guarantee Mortgage are not licensed tax specialists. Please consult with your own tax advisor.

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation. For more information please visit our Disclosures page: