During income tax season, many American homeowners will qualify for one or more tax deductions based on their real estate holdings. For some, the deductions can result in thousands of dollars in savings. Following is a quick list of four common tax deductions for U.S. homeowners.
1. Mortgage interest deduction: The mortgage interest deduction allows homeowners to deduct all mortgage interest payments. For many, interest payments comprise the vast majority of the first few years of mortgage payments, which can significantly reduce one’s tax liability. Every year, Americans save over $100 million by itemizing their mortgage interest deduction, which makes it one of the most compelling reasons for purchasing instead of renting a home.
2. Private Mortgage Insurance deduction: In general, homeowners who submit smaller down payments (20 percent or less of the sale price) must pay for Private Mortgage Insurance (PMI). For many homeowners, PMI can represent a significant portion of their monthly mortgage payment. To qualify for this deduction, mortgages must have originated in 2007 or later.
3. Mortgage points deduction: Also referred to as the mortgage origination deduction, the mortgage points deduction allows homeowners to deduct the points they paid on the purchase or refinance of their home. To utilize the deduction, homebuyers must deduct all of the points they paid in a particular tax year. On the other hand, homeowners who paid points on a refinance must deduct the points as an amortization throughout the duration of the loan.
4. Home office deduction: One of the most commonly used deductions among self-employed professionals, the home office deduction allows homeowners or renters to deduct a portion of their rent, utilities, and other home-related expenditures. To qualify for the deduction, homeowners must use a portion of their home exclusively for their business endeavors.