How To Pay Your Interest
Every year, you should receive a "Form 1098" from your lender, which details how much mortgage interest you paid. To claim this deduction, you need to fill out "Schedule A", under "itemized deductions" to record your interest deduction. Home mortgage deductions on your interest can also include late payment charges and pre-payment penalties. The only requirement is that they were not for a specific service received in connection with your home loan.
Homeownership comes with many advantages, especially when it comes to tax time. Make sure you are not missing important home-related tax deductions. As always, please consult your tax advisor to find out which deductions apply to you. Real estate taxes and the interest you pay on your mortgage are usually tax-deductible.
You may also be able to deduct the points you paid on your mortgage the year you purchase your home.
Real estate taxes are also tax-deductible. Your interest statement should list the amount of real estate taxes you paid if your taxes and homeowners' insurance were placed in an escrow account when you closed on your mortgage. If your real estate taxes are not included on the statement, review your cancelled checks to figure out the total amount of real estate taxes paid.
Seller concessions can go towards buying down the interest rate, closing costs, discount points, and pre-paid items such as per diem interest, escrows and tax pro-rations. Again, seller-paid points are tax-deductible.
If you refinanced in the last year, you may be able to deduct any points you paid to buy down the mortgage rate. These points must be deducted proportionately over the life of the loan. For example, if you took out a 30-year mortgage, you would deduct 1/30th of the points each tax year.
Many homeowners have overlooked an important tax opportunity. If you have refinanced more than once, you can deduct unclaimed points from an earlier refinance.
Interest paid on a home equity loan or line of credit may be tax-deductible up to $100,000. However, the deduction may be limited if the combined amount of your second and first mortgages total more than the property's actual value. For example:
Your home is worth $150,000 and you have a first mortgage for $125,000 and a home equity loan of $40,000. The two mortgages combined equal $165,000 that is $15,000 more than the value of your home. That means you can only deduct the interest on your home equity loan up to the amount of $25,000.