According to Ellie Mae’s latest Origination Report, the average FICO® Score on all closed loans dropped to 722 which is its lowest mark since April. The average includes all approved refinance
Dont Forget About Your Tax Deductions As A Home Owner
If you are like me you are thinking “ugh tax season”. As the W-2’s start to arrive in the mail and you prepare your paperwork don’t forget you have plenty of advantages when it comes to claiming tax deductions if you are a homeowner. The U.S. tax code is designed to offer incentives to homeowners, and by taking advantage of these breaks, 1040-filing citizens can maximize their financial investment in home ownership. Of course, every homeowner’s financial situation is different, so please consult with a tax professional regarding your individual tax liability.
Tax Deduction: Mortgage Interest Paid
Mortgage interest paid to a lender is tax-deductible and, for some homeowners, interest paid can provide a large tax break – especially in the early years of a home loan. This is because the standard mortgage amortization schedule is front loaded with mortgage interest.
Mortgage interest tax deductions are extended to second mortgages, too.
Interest paid on refinances, home equity loans (HELOAN) and home equity lines of credit (HELOC) are tax-deductible as well. However, restrictions apply on homeowners who raise their mortgage debt beyond their property’s fair market value.
The Internal Revenue Service (IRS) imposes a $1 million loan size cap. Loans for more than one million dollars are exempt from this tax deduction.
Tax Deduction: Discount Points
Mortgage tax deductions can extend beyond your monthly payment. Discount points paid in connection with a home purchase or a refinance are often tax-deductible, too.
A discount point is a one-time, at-closing fee which gets a borrower access to mortgage rates below current “market rates”.
When discount points are paid in conjunction with a purchase, the cost may be deducted in full, in the year in which they were paid, dollar-for-dollar.
Other Deductions: Property Taxes, Renovations, Home Offices
Real Estate Taxes – Homeowners typically pay real estate taxes to local and state entities. These property taxes can often be deducted in the year in which they are paid. If your mortgage lender currently escrows your taxes and insurance, it will send an annual statement to you which you can file with your complete federal tax returns. Your accountant can help determine the payment’s tax deductibility.
Home Improvements – For tax-paying homeowners, certain types of home improvement projects are tax-deductible. Home improvements made for medical reasons, for example, can be tax-deductible. If you are making home renovations to accommodate a chronically ill or disabled person, and the renovations do not add to the overall value of the home, the project costs are typically 100% tax deductible. Repairs and improvements made for aesthetic purposes are not tax-deductible.
Home Offices – Homeowners who work from their residence can typically deduct the expenses of maintaining a qualified home office. Allowable tax deductions for a home office include renovations to the room(s), telephone lines, and the cost of heat and electric. Before claiming a home office on your returns, though, be sure to speak with an accountant to understand the benefits and liabilities. There are caveats to claiming home office tax deductions on your tax returns, and the rules can be tricky.
Tax deductions will reduce your annual costs of home ownership and, for some homeowners, mortgage interest tax deductions will shift the answer to the “Should I Rent or Should I Buy?” question.
****Tax law changes frequently, though. Consider building your housing budget with the help of a tax consultant. Get a feel for how much home you can afford before and after accounting for your various homeowner tax breaks. Please remember everyone’s situation is different so please consult a tax professional regarding your individual tax liability***
Melody Hall Visser is a passionate Realtor who lists, sells, and dwells in Northern Virginia. Currently, she serves as a REALTOR at eXp Realty, LLC. As a life-long resident of Virginia, Melody has....