Since today is Tax Day, I’m sharing a helpful article I found on HouseLogic.com.
Owning a home can pay off at tax time. For 2011, hopefully you took advantage of these home ownership-related tax deductions, credits, and strategies to lower your tax bill:
1. Mortgage Interest Deduction - One of the neatest deductions itemizing home owners can take advantage of is the mortgage interest deduction, which you claim on Schedule A. To get the mortgage interest deduction, your mortgage must be secured by your home — and your home can even be a house trailer or boat, as long as you can sleep in it, cook in it, and it has a toilet. Interest you pay on a mortgage of up to $1 million — or $500,000 if you’re married filing separately — is deductible when you use the loan to buy, build, or improve your home. If you take on another mortgage (including a second mortgage, home equity loan, or home equity line of credit) to improve your home or to buy or build a second home, that counts towards the $1 million limit. If you use loans secured by your home for other things — like sending your kid to college — you can still deduct the interest on loans up $100,000 ($50,000 for married filing separately) because your home secures the loan.
2. Private Mortgage Insurance and FHA Mortgage Insurance Premiums - Unless the government acts, the mortgage insurance premium deduction will expire as of this year. But for now, you can deduct the cost of private mortgage insurance as mortgage interest on Schedule A — meaning you must itemize your return. The change only applies to loans taken out in 2007 or later. What’s PMI? If you have a mortgage but didn’t put down a fairly good-sized down payment (usually 20%), the lender requires the mortgage be insured. The premium on that insurance can be deducted, so long as your income is less than $100,000 (or $50,000 for married filing separately). If you make more than $100,000, your deduction is reduced by 10% for each $1,000 ($500 in the case of a married individual filing a separate return) that your adjusted gross income exceeds $100,000 ($50,000 in the case of a married individual filing a separate return). So, if you make $110,000 or more, you lose 100% of this deduction (10% x 10 = 100%). Besides private mortgage insurance, there is government insurance from FHA, VA, and the Rural Housing Service. Some of those premiums are paid at closing and deducting them is complicated. A tax adviser or tax software program can help you calculate this deduction. Also, the rules vary between the agencies.
3. Prepaid Interest Deduction - Prepaid interest (or points) you paid when you took out your mortgage is deductible over the life of the loan. Start with the amount that you paid at closing (it’s on your HUD-1 Settlement sheet). Divide by the number of years your mortgage lasts. If you don’t know how long your mortgage lasts, call and ask the mortgage servicing company that collects your loan payments to tell you. Keep in mind that the amount of prepayment is usually pretty small, so this can be a trifling deduction.
Points on a refinance loan aren’t deductible.
4. Energy Tax Credits - 2011’s federal energy tax credits are a lot smaller than they were in 2010 — up to $500 rather than 2010’s $1,500 maximum. But if you upgraded one of the following systems this year, it’s an opportunity for a dollar-for-dollar reduction in your tax liability (if you get the $500 credit, you pay $500 less in taxes):
- Biomass stoves
- Heating, ventilation, air conditioning
- Roofs (metal and asphalt)
- Water heaters (non-solar)
- Windows, doors, and skylights
- Storm windows and doors
To be continued…