Tax Savings of Home Ownership

Most homeowners are very aware that mortgage interest can often be a deduction from their income taxes. The maximum outstanding mortgage debt  for which interest is deductible is $1 million. The maximum outstanding home equity debt for which interest is deductible is $100,000.

Deductions for premiums for mortgage insurance (PMI) are not as well understood. If you were required to get PMI to receive financing on your home, then PMI can be a deduction.

Points on your mortgage are slightly more complicated. For a home purchase, points can be decucted in the tax year you paid them. For a refinance, the points generaly have to be amortized over the life of the mortgage.

When you pay your income taxes after purchasing a home, be sure to look at your closing statement (often called the HUD-1 form). Sometimes there are fees such as prepaid taxes or interest which can be deductible.

If you spend money to improve your house (rather than maintenance) keep records so that you will be able to deduct the cost from an increased sales price in the future.

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