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Deductible Homeowners
Expenses
One of the advantages of owning
your own home is that the home mortgage interest and real
estate taxes paid can be deducted from your federal income
tax*. To do so, you'll
need to comply with current tax laws and complete the
appropriate federal tax forms and itemized deduction
schedules.
Home Mortgage
Interest
For your home mortgage interest to be
deductible, it must be for a first or second mortgage, a home
improvement loan or a home equity loan.
Additionally:
- The mortgage
loan must be secured by your main home or a second
home
- Only interest paid for that tax
year can be deducted
The amount you can deduct can be
limited if your mortgage balance is more than $1 million
($500,000 if married filing separately) or the mortgage was
taken out for reasons other than to buy, build or improve your
home.
Points
Points (a.k.a. loan origination
fees, maximum loan charges, loan discount, or discount points)
are generally treated as pre-paid interest and, as such, the
full amount cannot be deducted in the year paid. Rather, the deduction
must be taken over the term of the
loan.
Real Estate
Taxes
State or local real estate taxes
can be deducted from your income if they are paid in the tax
year. To qualify,
the tax must be levied on the property's assessed value, the
taxing authority must charge a uniform rate for properties in
it's jurisdiction, and the tax must not be for your special
privilege but for the benefit of the general
welfare.
Restrictions on Itemized
Deductions
The amount of itemized deductions
you can take are restricted by your adjustable gross
income. In 2003,
the limits were $139,500 for single persons, persons filing as
head of household or qualified widow(er), or married persons
filing jointly; and $69,750 for married persons filing a
separate return.
Non-deductible
items
Many of the expenses related to
owning your own home cannot be deducted from your income
tax. These
non-deductible items can
include:
- Most
settlement costs including, but not limited to: appraisal
fees, notary fees, VA funding fees, and mortgage preparation
costs
- Insurance
- Local
assessments that generally add value to your home, such as
sidewalks, sewers, etc.
- Utilities
- Domestic
help
- Depreciation
Check with the
IRS
*The information contained in this
article is for informational purposes only and may not reflect
current tax year rules and regulations. You'll need to consult
with your tax attorney, CPA, or the IRS for current tax year
rules, restrictions and regulations.
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