Tax Tips for Home Owners (6/20/2009):
According to Money Magazine home owners lose $473-million per year by failing to deduct their mortgage interest. This does not count the loss of tax saving caused by not declaring property taxes and other deductions that may be allowable. Many home home owners take the standard deduction rather than itemizing their deductions, even though they have mortgages and or home equity loans that could have saved them money by itemizing. To find out if you can save by itemizing, fill out a Schedule-A and then compare it against the tax liability using the standard deduction.
Tip: Compare your mortgage interest plus any points on the purchase of your residence with your standard deduction. Don't forget to add in property taxes paid during the year. Compare these against the standard deduction.
Mortgage and equity line lenders should provide a Form 1098 Mortgage Interest Statement sometime during January. If you do not receive a copy call your bank or lender. This form will show the amount of mortgage interest you paid during the previous year. If you purchased your home during the previous year you may have paid points as part of the financing for your home, the points will also be shown on that form.
Tip: The best source of closing cost information for a recently purchased home is the final settlement statement from the escrow company. If you have misplaced your copy of the closing statement, call your title company. Most escrow companies are happy to print a new copy for free, some may charge a small fee.
Caution: Points paid on the refinancing of your home loan are not fully deductible in the year paid. Instead, they must be amortized over the life of the loan. For more detail, consult IRS Publication 936, Home Mortgage Interest Deduction.
Some additional notes:
- Nearly all mortgage lenders provide a year-end tax summary that includes any real estate taxes and insurance paid through impound accounts, as well as, interest paid on loans. The real estate taxes and interest are deductible, but homeowner's insurance and homeowner's association (HOA) fees are not.
- If you pay your real estate taxes yourself, review your property tax bills and cancelled checks and add up what you paid. You cannot deduct penalties you paid for late payment of property taxes: you can only deduct the actual taxes assessed and paid.
- Call or email The Tax Place for more information or assistance.