The internal debate you’re having on whether you want to continue renting or make the leap to buying a house has many factors to consider. Some of the biggest draws to becoming a homeowner are the tax breaks you get from that large financial responsibility.
Working for Your Money
Though there are many tax breaks at your disposal, you will have to “find the money” by filling out a more complicated form. Each of these deductibles needs to be itemized on Form 1040, Schedule A. However, the money you get back is often well worth the work of filing a non-standard form.
Multiple Deductions for Multiple Mortgages
Your Kansas City home loan payments are most likely made up of mostly interest. However, paying that mortgage interest works in your favor: it’s tax deductible on most home mortgages. This rule includes:
- First mortgages (so long as they are under $1 million)
- Second mortgages (used for refinancing, home equity loan, etc.)
- Mortgages on multiple properties (such as vacation homes, excluding residential rental properties)
Unfortunately, if you don’t spend at least fourteen days at your vacation home or at least 10% of the days you rent it out, it will probably be disqualified as a rental property.
Qualified home mortgages restrict how many points lenders are allowed to give out, but any points you did pay to lower your Kansas City mortgage rate can be eligible for a tax deduction. Requirements for this tax break include:
- You must have paid the points in the same year you’re filing your taxes for
- The points were within the qualified mortgage range
- The loan is used for your primary residence (no vacation homes or rental properties)
Home Equity Loans & HELOCs
Kansas City Home equity loans and home equity lines of credit (HELOCs) differ on their deductions depending on what they are used for. If they are used for purchasing a home, you can deduct your points on your tax form only on the same year you acquired the loan. If you are putting the loan or line of credit towards something other than a home, point deductions get a bit more complicated.
Whether you pay your property taxes as a one time fee or over the year through an escrow account, these payments are deductible. You can also get additional deductions if this year is the first time you’ve paid taxes on your current house. When you close a house, the year’s property taxes are divided between you and the previous owner. Your portion is also tax deductible, so don’t loose your closing documents.