Home Ownership Tax Deductions

You know that you can get an income tax deduction on the mortgage interest you pay. But there are other tax deductions you can take on your principal residence or second home -- such as property taxes -- and in some cases the cost of Private Mortgage Insurance.

A shelter from taxes

At tax time, your house is not simply a home: It's also a tax deduction.

You get to deduct:

·         Your property taxes. And if you bought the home in 2009, you may be able to deduct more property taxes than you think. Don’t forget to include taxes you may have reimbursed the seller for—taxes the seller had already paid before you took ownership. You won't get a 1098 report listing these taxes. Instead, that amount will be shown on the settlement sheet.

·         Property taxes for taxpayers who don't itemize. You can increase your 2009 standard deduction by up to $500 for real estate taxes paid in 2009 or by up to $1,000 for real estate taxes paid in 2009 if you are married and file jointly.

·         The mortgage interest on your primary residence, as well as on a second residence. (There are limits, but relatively few taxpayers are affected.)

·         The interest on up to $100,000 borrowed on a home equity loan or home equity line of credit, regardless of the reason for the loan.

·         Points that you paid when you purchased the house (or those that you convinced the seller to pay for you).

·         The premiums paid for Private Mortgage Insurance (PMI) in 2009, but only for policies issued after 2006. (The right to this deduction disappears as Adjusted Gross Income rises from $100,000 to $110,000 (or $50,000 to $55,000 for those who use married filing separately status.)

·         Home improvements required for medical care.

How much can I save?

The actual amount of money you save on your annual income tax bill depends on a variety of factors:

·         Your filing status (single, head of household, married filing jointly, married filing separately)

·         Your standard deduction amount

·         Your other itemized deductions

·         Your taxable income

Your home-related itemized deductions, plus your other itemized deductions must add up to more than the standard deduction (increased by the amount of property taxes noted earlier that are allowed to non-itemizers), or they won't save you any money.

What can't I deduct?

You can't deduct the following payments for a personal residence:

·         Dues to a homeowners association

·         Insurance on your home

·         Appraisal fees for your home

·         The cost of improvements to your home, except in the relatively rare case where they qualify as a medical expense. (But keep those receipts. They may help you reduce your taxes when you sell your home.)

Updated for tax year 2009

Provided by Sue Stapp
Mid America Funding Inc