Most first-time home buyers would usually ask the following questions: “Are closing costs tax deductible?” or “What deductions can I claim when purchasing a home?” If you are one of those people buying a home for the first time, then property taxes may seem overwhelming and confusing to you. Read on to learn more about tax breaks when buying a home.
Are Closing Costs Tax Deductible? | Tax Relief Center
1. Mortgage Interest
Most financial experts believe that mortgage interest deduction encourages home ownership. It makes a reasonable chunk of savings for people making monthly mortgage payments. Taxpayers who itemize their tax deduction can subtract mortgage interests of up to $1 million of debt from home purchases. Additionally, they are also entitled to a deduction of up to $100,000 of debt from a home equity loan. This tax deduction is usually reported on form 1098. Make sure to request this form from your lender.
2. Real Estate Taxes
Paid taxes are considered closing costs and are deductible when buying your own property. A taxpayer can claim this deduction if the property is for a primary home, vacation home, land, and foreign property. You can not deduct property taxes for properties you do not own like business properties, local improvements, and any other taxes not directly related to the property.
3. Insurance Premiums
Mortgage insurance premiums increase your expenses when buying a home. However, you can also take advantage of this expense and count it as a deduction. When receiving your form 1098 from your lender, you should see how much you have already paid for insurance premiums. Currently, there is no given limit to how much you can claim. Like the first two deductions above, insurance premiums are also itemized tax deductions.
4. Mortgage Points
Mortgage points, or loan origination points, are fees that are directly paid to the lender in exchange for reduced interest rates. This mortgage point can also help you save some penny when paying for your federal tax bill. If you use these points to pay your mortgage, then you qualify for this deduction. You can deduct mortgage points if it is a customary business practice in your area to pay with points. Additionally, you must use the cash method of accounting when reporting the home purchase.
Wondering what are the things you can write off when paying taxes? Is closing costs tax deductible? Watch this video for 5 things you can deduct from your taxes:
If you are buying a home for the first time ever and you’re wondering if closing costs are tax deductible, knowing the options for what you can do to further save on property taxes certainly helps. Make sure to take advantage of these tax deductions as it substantially reduces your expenses which you can use for home improvements and other things.
Did we miss any other tax deductions you can claim when buying a home? Share your thoughts with us in the comments section below.