Happy New Year! As we enter this new year, many of you are preparing for tax season. Here are some home ownership expenses that are typically tax deductible.
Your entire mortgage payment is not tax deductible. However, the portion that applies to interest paid during 2016 is. Your mortgage company will send you a tax form that details exactly how much interest you paid last year. If you purchased your home during 2016, check your closing statement to determine whether any pre-paid interest paid at closing is properly included in that statement.
If you closed on your home during 2016 and paid points on your loan, that amount may be tax deductible. Points are essentially pre-paid interest. You paid extra interest up-front in order to receive a lower interest rate over the life of your loan.
If you own a home, then you pay property taxes. You may pay it directly to your local municipality. For most homeowners, you pay a certain amount each month to your lender, which goes into an escrow account. Your lender then pays your tax bill using the funds from that account. The tax deductible amount is not what you paid into escrow each month but rather what was actually paid to the municipality for the tax year 2016.
The tax form from your mortgage company usually includes the amount paid for property taxes. However, you’ll want to verify this figure. Some property tax bills cover months both before and after the due date. Additionally, there may be a property tax adjustment in your closing statement if you purchased in 2016.
If the down payment on your mortgage was less than 20%, you likely pay mortgage insurance each month. You may have also paid an up-front mortgage insurance premium at closing. These are typically tax deductible if your adjusted gross income is less than $100,000 and you closed on your home between 2007 and 2014. Other restrictions also apply. Provide your mortgage insurance premium details to your accountant to determine whether you qualify for this tax deduction.
Expenses that are not tax deductible
Above are the most common tax deductible expenses. It is equally important to note what expenses are not tax deductible. Homeowners insurance, title insurance, homeowners association dues, general closing costs, and home repairs for single family properties used as a primary residence are not tax deductible.
If you own a multi-family property that is both a primary residence and investment property, the rules are a bit different. Ask your accountant for details on additional expenses that you may be able to deduct for investment properties.
By Suzanne Plewes, RE/MAX Alliance in Loveland
Suzanne Plewes is a broker associate at RE/MAX Alliance. Write to 750 W. Eisenhower Blvd., Loveland, CO 80537, call 970.290.0373 or e-mail firstname.lastname@example.org.