Mortgage Interest
Deductions
You can
deduct the interest on your home loan
and the real estate taxes you pay on the
home.
Mortgage interest is deductible up to $1
million, $500,000 if
Married Filing
Separately as long as you use the money
to buy, build or improve on your home
and the loan is secured by your home.
Plus, the interest you pay on loans
secured by your home and used for a
purpose other than to buy, build or
improve your home is deductible for
loans up to $100,000 ($50,000 if you're
Married Filing Separately). The limit
may be reduced depending on the market
value of the home at the time you take
out the loan.
Points or origination fees paid when you
purchase your home generally are
completely deductible in the year you
pay them.
Alternatively, you may choose to
amortize the points over the term of
your mortgage. This choice is usually
made only when your
itemized deductions
are less than the standard deduction for
the year you bought the home.
Points paid
to refinance a loan must be deducted
over the term of the loan. If you deduct
points over the term of the loan and
sell the home or refinance it again
before the loan expires, you can deduct
in the year of the sale or refinancing
any points that you didn't previously
deduct.
Personal Residence Capital Gain
Exclusion
When you sell your home, the IRS allows
you to exclude the gain on the sale from
taxable income, up to $250,000 if
single, and $500,000
if you're Married Filing Jointly and you
both meet the use requirement.
You can claim the exclusion if you own
and used the home as your main residence for
at least 2 years during the 5-year
period ending on the date of sale. You
may claim this exclusion only once in
any 2-year period.
If you don't meet the 2-year
requirement, you may be eligible to
claim a reduced exclusion, if you sell
your home because of an unforeseen
circumstance, such as a change in
employment or a divorce. A loss on the
sale of your home, however, isn't
deductible.
Buying a home is a great way to reduce
your income tax. The qualified mortgage
interest you pay and your real estate
taxes are both deductible.
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