Your Home as a Tax Shelter: Top Ten Tax Deductions for Owning Your Home
Learn about the many tax benefits of owning your own home.
Your home provides many tax benefits -- from the time you buy it right on through to when you decide to sell. Here's a summary; for details, visit the IRS website at www.irs.gov.
1. Mortgage Interest
If you're filing jointly, you can deduct all your interest payments on a maximum of $1 million in mortgage debt secured by a first or second home. The maximums are halved for married taxpayers filing separately. You can't use the $1 million deduction if you pay cash for your home and later use it as collateral for an equity loan.
If your lender required you to buy PMI (private mortgage insurance, often required when the loan is for more than 80% of the home’s purchase price), the PMI premiums are tax-deductible for mortgages taken out in 2007 through 2010. However, the amount of the deduction depends on your income -- if you're earning more than $100,000 per year, the deduction starts to phase out.
Learn more from IRS Publication 936, Home Mortgage Interest Deduction, available at www.irs.gov.
2. Points
Your mortgage lender will charge you a variety of fees, one of which is called "points." One point is equal to 1% of the loan principal. One to three points are common on home loans, which can easily add up to thousands of dollars. You can fully deduct points associated with a home purchase mortgage. Refinanced mortgage points are also deductible, but only over the life of the loan, not all at once. Homeowners who refinance can immediately write off the balance of the old points and begin to amortize the new.
3. Equity Loan Interest
You may be able to deduct some of the interest you pay on a home equity loan or line of credit. However, the IRS places a limit on the amount of debt you can treat as "home equity" for this deduction. Your total is limited to the smaller of:
- $100,000 (or $50,000 for each member of a married couple if they file separately), or
- the total of your home's fair market value -- that is, what you'd get for your house on the open market -- minus certain other outstanding debts against it.
IRS Publication 936, Home Mortgage Interest Deduction, available at www.irs.gov, explains the details.
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