Home Owner Tax Savings
Home Owner Tax Savings
CHICAGO, IL — February 29, 2008 — Most homeowners are aware they can deduct the interest from their mortgage on their tax return. So long as you itemize deductions on Schedule A (Form 1040), and are legally responsible for your home, is most cases the interest is fully deductible.
But there are many other ways you can save.
If you sold your home in 2007, individuals are entitled to receive up to $250,000 without paying capital gains, and couples filing jointly up to $500,000. Those who sold a home for a profit in 2007 should review the Taxpayer Relief Act of 1997 for more information on avoiding capital gains taxes.
The Mortgage Forgiveness Debt Relief Act of 2007 provides relief to homeowners whose debt was forgiven in 2007. If applicable, homeowners should fill-out and attach Form 982 to their income tax return. This legislation is so recent, the IRS recommends homeowners using tax-preparation software to download software revisions from their software provider's Web site.
Any "points" you paid when obtaining a mortgage may be tax deductible too. The IRS explains the conditions that must be met to deduct the points in full at Topic 504 - Home Mortgage Points.
The IRS also explains a recent change to the tax code that benefits homeowners paying private mortgage insurance (PMI). IRS Tax Tip 2008-27 details the tax deductibility of mortgage insurance expenses homeowners should note before filing their 2007 federal income tax:
"Some borrowers may be able to deduct mortgage insurance premiums paid on mortgages taken out or refinanced during 2007. The deduction for mortgage insurance premiums is phased out for taxpayers with adjusted gross incomes exceeding $100,000 ($50,000, if married filing separately). Claim this deduction on Schedule A, Line 13. Further details are in Publication 936."
According to the IRS, mortgage insurance premiums could also be reclassified as home mortgage interest:
"You may be able to treat mortgage insurance premiums you paid during 2007 as home mortgage interest. The mortgage insurance must be paid in connection with home acquisition debt, the mortgage insurance contract must have been issued after 2006, and you must have paid the premiums before 2008 for coverage in effect during 2007."
Guaranteed Rate hopes non-homeowners will consider the tax advantages of a home mortgage. We also urge homeowners with high-interest credit card debt to turn their normally non-tax deductible credit card interest payments into a tax deductible mortgage payment.
While offering many tax-saving opportunities, a home mortgage is only one piece of your financial picture. Guaranteed Rate recommends carefully reviewing Publication 936 (2007) Home Mortgage Interest Deduction and consulting with a tax attorney or accountant before making any financial decision..