Homeowners generally can deduct the interest they pay on their
mortgages–but that’s not the only tax benefit available if
you own a home.
- Real estate property taxes are usually deductible.
- Anyone who builds a home can deduct the sales tax paid on
homebuilding materials. That amount can be added to the sales
tax number from the IRS table, if you choose to deduct state
sales tax rather than state income tax.
- Frequently, homebuyers pay “points”–extra charges–at
closing in order to obtain a mortgage. They might be called
discount points, loan discounts, loan origination fees, or
maximum loan charges. Because points are usually paid in
return for a lower interest rate, they’re really prepaid
interest so they are generally tax-deductible.
- Points paid during refinancing must be deducted over the
life of the loan. For a thirty-year loan, you get to deduct
1/30 of that amount each year.
However, if you do a “cash out” refinance and use some of
the funds to improve your primary residence, a portion of
the points are deductible in the year you paid them. For
example, if you obtained a $200,000 loan via refinancing
and $50,000 was used for home improvement, then one-fourth
of the points are deductible in the year you obtained the loan.
