Tax Deductions for Homeowners

I am going to spend a couple of blog topics going over schedule A.  Schedule A is the form that you attach to the Form 1040 that details your itemized deductions.  On the 1040, you have two options, standard deduction ($6300 Single/MFS, $12,600 MFJ/Qualifying Widow, and $9250 HOH) and itemized deduction.  If you are able to itemize more than your standard deduction for your filing status, you are able to deduct the greater amount of the itemized deduction.

Four of the deductions for homeowners have to do with home ownership.  I am going to go over these four deductions on this blog.  I have assumed that you are filing Form 1040, U.S. Individual Income Tax Return, and you are itemizing your deductions on Schedule A (Form 1040).

Real Estate Taxes - You can deduct real estate taxes imposed on you. You must have paid them either at settlement or closing, or to a taxing authority (either directly or through an escrow account) during the year.  Enter the amount of your deductible real estate taxes on Schedule A (Form 1040), line 6.   

Sales Taxes - Generally, you can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Deductible sales taxes may include sales taxes paid on your home (including mobile and prefabricated), or home building materials if the tax rate was the same as the general sales tax rate.

Home Mortgage Interest - To be deductible, the interest you pay must be on a loan secured by your main home or a second home. The loan can be a first or second mortgage, a home improvement loan, or a home equity loan. You can deduct as home mortgage interest a late payment charge if it was not for a specific service in connection with your mortgage loan.

If you pay off your home mortgage early, you may have to pay a penalty. You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan.  One item that normally appears on a settlement or closing statement is home mortgage interest. You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). This amount should be included in the mortgage statement.

You cannot deduct the full amount of points in the year paid. They are prepaid interest, so you generally must deduct them over the life (term) of the mortgage

Enter on line 10 of Schedule A the home mortgage interest and points reported to you on Form 1098. If you did not receive a Form 1098, enter your deductible interest on line 11, and any deductible points on line 12.

Mortgage Interest premiums - You may be able to take an itemized deduction on Schedule A (Form 1040), line 13, for premiums you pay or accrue during 2015 for qualified mortgage insurance in connection with home acquisition debt on your qualified home. Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction.

Note:  The itemized deduction for mortgage insurance premiums has been extended through December 31, 2016.

Link to Schedule A