Owning a home can yield sizable financial rewards, such as growing equity and long-term security. However, the costs of purchasing, maintaining and repairing a property can be expensive over the life of a loan. For these reasons, the Internal Revenue Service allows eligible homeowners to take advantage of several deductions when they file their income taxes to lower their liability.
For example, owners who paid points in order to secure their mortgage can write them off during filing season as long as they were used in the initial purchase of the property. Many people refinanced their homes in recent years to take advantage of competitive mortgage rates, reduce their payments or pay off their mortgage balances more quickly. Individuals who refinanced their property may also write off mortgage points associated with this transaction, but it must be done over the life of the loan.
Private mortgage insurance premiums may also be deducted on individuals' principal or second residence, according to Zillow. However, the deduction begins to phase out for joint filers whose adjusted gross income is $100,000 or higher, or $50,000 or higher for singles. As the rules for deducting PMI can vary depending on the type of mortgage individuals carry - i.e. FHA, VA or other government-backed mortgage - homeowners should consult with their tax preparer before deducting these amounts.
One of the most costly aspects of owning a home includes paying property taxes to state and local governments. The IRS allows homeowners to deduct these taxes on their returns, so long as the money is not being held in escrow to cover property tax payments.
Deductions exist for sellers as well
Individuals who sold their homes in the past year may also be eligible for tax breaks. People generally absorb a number of costs associated with selling their properties, including repairs, broker's fees and title insurance. Many of these costs are deductible, particularly with regard to repair costs. However, there are special rules governing these expenses, and homeowners who try to write off repairs must ensure that they were completed within 90 days of the sale, and that they were completed for the sole purpose of improving the home's marketability, Zillow explains. Individuals who have questions about selling costs should address them with their tax office to ensure that they are valid for deductions.
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