Owning a home can yield you tax breaks. To take advantage, you must itemize your deductions rather than take the standard deduction offered by the Internal Revenue Service. You claim these and other itemized deductions on Schedule A of Form 1040.
The interest on a loan for your primary home and a second home is deductible. Stick-built homes, manufactured homes, boats, condominiums and house trailers qualify as homes. If you used the mortgage to buy, build or improve the home, you can write off the interest on up to $1 million, or $500,000 if married filing separately. For a mortgage used for other purposes, such as to consolidate credit cards or buy a car, the loan on which your interest is based is capped at $100,000, or $50,000 if married filing separately. Your lender should issue you a Form 1098 that reports your mortgage interest if you paid more that $600 in interest or points.
Video of the Day
Points are the charges you face to score a loan. Sometimes, they're called loan origination fees or the costs of getting a lower interest rate. You can write them off in the year you pay them, normally at loan closing, if the loan is for buying, building or improving the abode and the loan is secured by your main home. Otherwise, the Internal Revenue Service treats the points, including those on a refinance, as prepaid interest that you must deduct in portions over the loan's life. Fees for the appraisal, preparation of the mortgage documents and the notary are examples of loan-connected services that don't count as deductible interest. You can find your points on Form 1098, if your points and mortgage interest total at least $600.
Mortgage Insurance Premiums
When you don't put down at least 20 percent of the price, your lender will normally require mortgage insurance to cover its losses should you default on the loan. You may deduct premiums you paid in 2014 for mortgage insurance if you acquired it in 2007 or later and the home secures the loan. This deduction does not extend to premiums paid after 2014. Only loans used to acquire, construct or improve a home qualify for this break.
Real Estate Taxes
Your property tax bill can yield relief on your federal taxes. Property taxes, also called ad valorem taxes, are assessed by local governments on the value of your home. You can deduct these taxes, so long as the tax rate is uniform for all properties in the municipality, county or parish. Assessments on specific properties, such as to pay for sidewalks, sewer or other improvements on them, don't count as deductible taxes. You may add these assessments to your home's cost in figuring the gain and, thus, the tax from the sale of your home.
You must choose between deducting state and local income taxes and sales taxes. If you opt for sales taxes, you can count the general sales taxes you pay for buying a home, including a manufactured, mobile or modular home; and materials for major renovations or additions. The IRS treats sales taxes paid by contractors as if you paid them, so long as your contract states that the contractor can act for you and must follow your directions on purchases. Taxes imposed on the transfer of real property, sometimes referred to as real estate excise taxes, are not deductible.