Tax Day 2015

The only certainties in life are death and taxes … and perhaps tax breaks. For virtually as long as the tax code in the United States has existed there have been special circumstances in which a citizen need not pay taxes. From subsidies for farmers to tax-free charitable entities, the government tax code is exhaustive and complex.

In the U.S., most business expenses reduce taxable income, though limits apply to a few expenses. Individuals are permitted to reduce taxable income by certain non-business expenses, including charitable contributions and medical expenses.

But being a homeowner is one of the greatest tax breaks of all. From being able to write off almost all mortgage interest, including primary and secondary residences, to property tax deduction and clean energy tax credits, homeowners have literally dozens of options on their plate.

Here are just a few of the important tax breaks every homeowner should be taking advantage of:

Mortgage Interest Deduction (MID): This is perhaps one of the most important tax deductions offered, especially for homeowners in the early stages of their mortgage in which interest tends to be the largest chunk of their payments. A homeowner can write off almost all the interest paid on a mortgages and home equity line of credit, or HELOC. Even the mortgage interest on a second home is tax deductible. That second home doesn’t necessarily need to be a residence either. RVs and boats equipped with cooking and sleeping quarters are also eligible. You can even rent out that boat, RV or vacation home, although you must use it at least two weeks a year or the IRS will consider it a full-time rental and ax your deduction.

✔ Mortgage Points: If you bought or refinanced your home in the last calendar year and paid points to get a better rate on your mortgage, there’s a tax break for that, too. But be careful with this one; the IRS only allows you to deduct mortgage points in the year you pay them and only if the loan is to purchase or build your primary residence. There are other stipulations as well, such as differentiating between points paid for refinance or purchase, home equity lines of credit and second homes, and so it’s best to consult a tax professional before taking this deduction.

✔ Property Taxes: Another major deduction offered to home owners is the property tax deduction. For the most part, every cent spent on property taxes is deductible from your taxable income.  However, some costs that appear on your property tax bill, such as appraisal fees, title insurance and credit report costs, are not tax deductible.

✔ Home Improvements: While you can’t write off the cost of materials and labor for home improvements, you can write off the interest accrued on a home-improvement loan, such as the FHA Title 1 loan offered by approved lenders, including loanDepot.

Mortgage Insurance: In some cases, the monthly mortgage insurance premium you pay when the loan-to-value ratio on your home is greater than 80 percent is tax deductible.  The deduction is reduced if your adjusted gross income, or AGI, is over $100,000, and if it’s over $109,000, the deduction vanishes altogether, whether you’re single or married.

These are just a few of the largest deductions available to homeowners. While many of the costs of homeownership are deductible on your taxes, it’s important to note that many costs are not tax deductible. Insurance policies, such as fire and earthquake insurance, are not deductible, even though they may be required by your lender. Other nondeductible expenses include homeowner’s association dues, closing costs, and local assessments such as Mello Roos.

While you may be eligible for these deductions, you should always consult a tax professional before taking any deduction on your annual return.

A loanDepot licensed loan officer can help with these and any other lending questions. Call (888) 983-3240 to speak with one today.

Published April 6, 2015


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