Time Again to Think about your Annual Mortgage Taxes
Whether you have refinanced your existing home loan [http://www.hlstx.com] or taken a second mortgage, your lender should send you a Form 1098 each year which indicates the amount of mortgage interest you've paid during the year. In most cases, that amount is tax-deductible on your Federal income tax return. You will need to file a Schedule A in order to itemize your deductions to claim this benefit, but the savings are worth the extra work for most taxpayers.
You should also receive an annual escrow statement indicating how much of your mortgage payments were used to cover expenses like homeowner's insurance and real estate taxes. If this doesn't land in your mailbox in a timely manner, call your lender and ask for this information. It is important to keep your eye out for your escrow statement because property taxes are also deductible, and in Texas particularly, this represents another powerful tax break. If you pay your taxes on your own, you might do a quick review of your likely income for the next year. If your income will be substantially higher one year vs. the next, you might want to load up on deductions and pay your property taxes in the calendar year in which your income will be higher to maximize the value of the deduction.
If you have a second mortgage on your property, such as a home equity loan or a home equity line of credit, much of the interest paid on those loans is deductible. Every dollar used to finance home improvement projects up to $100,000 reduces your taxable income dollar for dollar.
Points paid on a purchase money mortgage are typically deductible in the year which your home was acquired if the property is your primary residence and your mortgage is less than $1 million. If you refinanced this year, your points can also be deductible, though usually over the life of the mortgage rather than in a single year. For example, a borrower with a 15-year mortgage loan would be able to deduct 1/15th of the paid points every year, until the loan is paid off or refinanced. This prorated deduction also applies to points paid to acquire a vacation home.
Though not widely known, mortgage insurance premiums may also be tax deductible whether premiums are paid to FHA or private mortgage insurance companies. You can also deduct mortgage insurance on a refinance of acquisition debt. VA Funding Fees are deductible in the year in which they are paid, while FHA and private mortgage up-front mortgage insurance premiums are typically deductible over 7 years or the life of the loan. There are a number of restrictions, so borrowers should consult their tax advisor for specific details.
If you took out a new mortgage in 2010, one of the most important tools you can provide to your tax professional is your HUD-1 Settlement Statement. This document will give your tax preparer all the information they need to maximize your deductions, so keep it in a safe place.
For more specific details on any of the tax saving ideas discussed here, visit the IRS web site at http://www.IRS.gov.
You should also receive an annual escrow statement indicating how much of your mortgage payments were used to cover expenses like homeowner's insurance and real estate taxes. If this doesn't land in your mailbox in a timely manner, call your lender and ask for this information. It is important to keep your eye out for your escrow statement because property taxes are also deductible, and in Texas particularly, this represents another powerful tax break. If you pay your taxes on your own, you might do a quick review of your likely income for the next year. If your income will be substantially higher one year vs. the next, you might want to load up on deductions and pay your property taxes in the calendar year in which your income will be higher to maximize the value of the deduction.
If you have a second mortgage on your property, such as a home equity loan or a home equity line of credit, much of the interest paid on those loans is deductible. Every dollar used to finance home improvement projects up to $100,000 reduces your taxable income dollar for dollar.
Points paid on a purchase money mortgage are typically deductible in the year which your home was acquired if the property is your primary residence and your mortgage is less than $1 million. If you refinanced this year, your points can also be deductible, though usually over the life of the mortgage rather than in a single year. For example, a borrower with a 15-year mortgage loan would be able to deduct 1/15th of the paid points every year, until the loan is paid off or refinanced. This prorated deduction also applies to points paid to acquire a vacation home.
Though not widely known, mortgage insurance premiums may also be tax deductible whether premiums are paid to FHA or private mortgage insurance companies. You can also deduct mortgage insurance on a refinance of acquisition debt. VA Funding Fees are deductible in the year in which they are paid, while FHA and private mortgage up-front mortgage insurance premiums are typically deductible over 7 years or the life of the loan. There are a number of restrictions, so borrowers should consult their tax advisor for specific details.
If you took out a new mortgage in 2010, one of the most important tools you can provide to your tax professional is your HUD-1 Settlement Statement. This document will give your tax preparer all the information they need to maximize your deductions, so keep it in a safe place.
For more specific details on any of the tax saving ideas discussed here, visit the IRS web site at http://www.IRS.gov.
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