The Mortgage And Property Tax Deduction

Nov 3 08:43 2008 Kate Ford1 Print This Article

Buying a home is probably the single most important purchase you will ever make. Although some expenses do no qualify for deductions on your tax return, there are costs of home ownership that are tax deductible. One way to look these deductions is simply that the U.S. Government is helping you pay your mortgage and property taxes.

Simply put,Guest Posting most Americans can enjoy a tax shelter just by owning a home.

As you read every word of this article, you will discover some of the incredible tax advantages of home ownership.

The government wants to encourage you to own your home. This desire creates opportunity to take a tax deduction from some ordinary costs of home ownership. In effect, the tax code allows you to reduce some of your out-of-pocket costs related to buying and owning your home.

Expenses related to home ownership can be tax deductible. You can also profit from the sale of your home tax free as well as borrow, reaping tax-free funds.

Rarely do you experience a larger purchase than a home and this very dwelling remains under your ownership for an extended period of time. There are costs of home ownership that are tax deductible and there are costs that do no qualify for deductions on your tax return. Because tax laws change, it is wise to contact a certified public accountant for current advice regarding taxes.

Two deductions for home ownership expenses are property taxes and mortgage interest. Here is an example of how it works.

At the end of the year, your mortgage lender(s) will send you the total of interest you paid on your mortgage for the previous year. You should also have a property tax bill for property taxes the previous year.

Let's suppose that your mortgage interest last year totaled $12,000 and your property taxes amounted to $3,000 for a total of $15,000. If you are in the 28% tax bracket your actual costs out-of-pocket would be $10,800. So the deductible value is $15,000 X 28% or $4.200.

Caution: Home owners in high-income brackets are advised to seek counsel from a qualified financial adviser. Your tax advantages may be less in this example.

Basically mortgage interest is deductible for your primary residence and for one additional home such as a vacation home. For purchase money loans, mortgages originated for the purpose of buying a house, interest can be deducted on loans up to $1 million. For mortgages on your home other than for buying your home, such as home renovation, interest can be deducted on loans up to $100,000.

Equally important, real estate property taxes are also deductible and there is no limitation to the dollar amount. This again reduces your cost out-of-pocket regarding property taxes.

Another way to look at these deductions is simply that the government is helping you pay the mortgage and property taxes.

Casualty and theft losses are can also be deducted. For example, if your house was damaged by a storm or fire, you could deduct the losses on your tax return if you are not compensated by insurance. The loss however must be greater than 10% of your adjusted gross income. Again, contact a financial specialist or accountant for details.

A lot of people take advantage of the Business Use Of A Home Deduction. Up to date technology allows many employees and self employed business owners to work from the comfort of their homes. If you are one of these you may qualify for the Business Use Of A Home Deduction. For all the details regarding the business use of a home, the IRS has prepared Publication 587.

If you qualify you may be able to deduct allowable expenses as well as write off depreciation for use of the portion of your home that you use for an office. But be aware that you will have to recapture the depreciation when you sell.

Fire and liability insurance, day to day upkeep, labor costs, and utilities are a few expenses not included in tax deductions.

This article is the first in a series explaining how your home can be a tax shelter reducing the real cost of home ownership. Watch for other articles in this series regarding tax-free sales and tax-fee borrowing. And remember always consult an accountant, attorney or financial adviser regarding your specific financial situation.

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About Article Author

Kate Ford1
Kate Ford1

Kate Ford, author of the contemporary and informative website http://www.get-your-best-mortgage-rate.com understands how to help current and prospective homeowners in today's home loan environment. Do you wish you knew how to stay informed during a tumultuous economy? Discover the magic of mortgage events dedicated just to you by visiting Mortgage News

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