Homeowner's Guide to Tax Deductions

HOMEOWNER’S GUIDE TO TAX DEDUCTIONS

If you own your own home, it can pay off at tax time!  For 2012, see if you can take advantage of these home ownership-related tax deductions, credits, and strategies to lower your tax bill with our homeowner’s guide to tax breaks!

One of the most popular deductions itemizing home owners can take advantage of is the Mortgage Interest Deduction.   To get the deduction, your mortgage must be secured by your home.  Interest you pay on a mortgage of up to $1 million — or $500,000 if you’re married filing separately — is deductible when you use the loan to buy, build, or improve your home.

You can also deduct the cost of Private Mortgage Insurance thanks to the government extending it through 2013.   However, you must itemize your return and it only applies to loans taken out in 2007 or later.  Private mortgage insurance, also called PMI, usually occurs when you don’t have a sizable down payment and the lender requires the mortgage to be insured.   The premium on that insurance can be deducted, so long as your income is less than $100,000 (or $50,000 for married filing separately).

If your adjusted gross income is more than $100,000, your deduction is reduced by 10% for each $1,000 ($500 in the case of a married individual filing a separate return) that your adjusted gross income exceeds $100,000 ($50,000 in the case of a married individual filing a separate return).

Prepaid Interest, also called points, is also 100% deductible in the year you paid them along with other mortgage interest.  If you refinance your mortgage and use the money for home improvements, any points you pay are also deductible in the same year.  However, if you refinance to get a better rate or use the money for something other than home improvements, you’ll need to deduct the points over the term of the loan.

The government extended the Energy Tax Credit for 2012 and 2013, although significantly reduced.   If you upgraded one of the specific items listed on the EnergyStar website, you can receive 30% tax credits on projects geared toward environmental-friendly homeowners.

Of course, you can also deduct the Real Estate Property Taxes you pay. If you have a mortgage with an escrow account, the amount of real estate property taxes you paid shows up on your annual escrow statement. If you bought your home in 2012, check your HUD-1 Settlement statement to see if you paid any property taxes when you closed the purchase of your house. Those taxes are also deductible.