Home Mortgage Tax Breaks

By Jonathan Haeber
CMR Columnist

There are rare moments in our lives when we feel truly clever. One such moment is when we find the newest legal tax loophole. Last time it happened to me, I jumped in the air, kicked my heels, and whistled. And to think, that was for fifty bucks. A home mortgage tax break could be much more lucrative!

Tax breaks can save you thousands of dollars where home loans are concerned--if you know how to claim them. One of the largest tax breaks you'll ever claim will likely be your home mortgage interest deduction. For example, this year, I'll be saving $2,500 dollars on my federal taxes simply by deducting my home loan interest. That's $2,500 extra just for being a homeowner.

The Mortgage Credit Certificate is Your Friend

Here's a really exciting find I wish I'd known about earlier: the 1984 Tax Reform Act program called "Mortgage Credit Certificate." If you're a low-income, first-time homebuyer, you could receive a tax credit on up to 20% of your interest payment. A tax credit, unlike a deduction, is a dollar-for-dollar subtraction from your total taxes, which means huge savings.

Say you will be paying $15,000 in interest during first year of your home loan; with the Mortgage Credit Certificate you can deduct 3,000 dollars (20% of your interest) from your total taxes. The remaining 80% of your interest is then applied to your standard deduction on Schedule A. You must apply for this certificate prior to closing escrow on your home loan. If you don't, then you miss out on your chance, as I did.

So That's What Accountants Are For!

All of this home loan tax jargon may get confusing, but buying a home is usually a smart decision when looking at the savings in taxes. Of course, you will still pay property taxes, but your savings from deductions will likely offset those costs.

When you decide on a home mortgage, be sure to find a good tax preparation firm in your area. And before making any decisions or claiming any of these deductions or credits, be sure to talk to a tax pro to ensure you'll be able to claim them. Once you own a home, doing your own taxes is a whole new ballpark. Trust me.

Sources
IRS Mortgage Deduction Help

About the Author
Jonathan Haeber is a marketing writer for Discovery Channel Stores. He recently purchased his first home, and took a self-taught crash course in home mortgages.

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