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Tax Advantages to Your Home Mortgage Loan
By Sheryl Landrum
CMR Columnist
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Yes, buying a new home costs money. But did you know it can save you money as well? There are several potential tax advantages to purchasing a new home or refinancing your home loan.
Homeownership helps to build personal wealth in numerous ways. Not only do you purchase shelter for your family, homeownership also provides the opportunity to build wealth in the form of home equity. Your home may increase in value, and at the same time save you tax dollars as well.
What are the potential tax benefits of your new home or home loan?
- Many settlement or closing costs may be tax-deductible with a new home loan or home loan refinance. These costs include "points" which many borrowers choose to pay to lower their mortgage interest rate.
- Prepaid mortgage interest is also tax-deductible if you itemize your deductions.
- Your largest tax deduction could be interest paid on your mortgage loan. It is usually deducted on your Schedule A form, as are your real estate taxes. If you're purchasing a second home or investment property, these deductions apply as well.
- If you work from home, and you have a qualifying home office, you may be able to deduct a portion of your home's expenses.
- Depending on your income, damage that's not reimbursed by your homeowner's insurance may be deductible on your Schedule A.
- Home improvements that are health-related and doctor-ordered can also be claimed as a health expense deduction on your Schedule A, subject to income limitations and providing they do not enhance your home's value.
As you can see, homeownership has its benefits. Not only can you build wealth in the form of home equity, but you may also create wealth in the form of savings with mortgage and other tax deductions.
Sources
Internal Revenue Service, "Topic 507 - Casualty and Theft Losses"
NOLO, "The Home Office Tax Deduction"
About the Author
Sheryl Landrum is a senior loan officer with First Capital Mortgage of San Diego, California.
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