Home ownership offers a number of tax advantages, but it’s easy to forget some of the deductions that are available. Here is a list of common deductible expenses to put in your tax file, so you don’t give Uncle Sam more than you owe.
If you purchased a home in 2016, any origination charges, the interim interest, any PMI premiums, and some attorney-related charges associated with the purchase are tax deductible. They are deductible by you regardless of whether you or the seller paid them at closing.
If you refinanced a home in 2016, the same deductions allowed for a purchase also apply to a refinance. In both cases, tax preparers differ in their opinion of whether the de-ductions have to be applied over the life of the loan, or can be accelerated to reflect the average life of the loan. See your tax advisor for a final opinion.
Monthly PMI Premiums are tax deductible now. Changes made several years ago reclassified monthly PMI premiums as “finance charges,” so they are now fully deductible. If your lender does not provide you with a statement reflecting this, call your servicer and obtain the amount of PMI you paid for the year.
If you purchased or refinanced using an FHA, VA, or USDA loan, the up-front mortgage insurance premium can be deducted. Generally, the up-front premium is designed to term out over 9 years, so you can take at least a 1/9 portion as an annual deduction for the first 9 years of the loan.
Property taxes are deductible.
Interest paid on your mortgage is tax deductible.
Any losses not reimbursed by your insurance company (including any amount you had to pay as a deductible) are tax deductible.
If you own a vacation home, all of the above deductions can apply, but some are limited, depending on how you reported any rental income for the second home. You should see your tax preparer for advice specific to your case, but one important note: For the house to be considered a second home by a future lender, always fill in the box on your Schedule E that indicates you retained use of the home for personal use, for the mini-mum number of days required, so that the property does not get classified as invest-ment (rental) property down the road. This will save you significantly should you ever refinance the home.
I wish my advice were tax deductible, but since it’s free, it isn’t. Since often you get what you pay for, be sure and consult your tax preparer in regard to all of the advice given above. Happy New Year from all of us at Preferred Financial Services!
Mark welcomes any questions regarding mortgage matters and can be reached at 864-235-9596 or via email at Mark@TheGreatestRates.com.
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