Bought A New Home Last Year? 3 Tax Deductions To Claim
Investing in a new home is a major financial undertaking. A home is one of the largest purchases that most consumers will make during their lifetime. It's important to understand how the purchase of a new home can impact your taxes.
The federal government encourages consumers to buy homes by offering tax incentives and deductions exclusively for homeowners.
Using these deductions can reduce your tax burden and help you improve your financial health over time.
1. Mortgage Interest
Most consumers rely on mortgage loans to make a home purchase possible. Financial institutions lend consumers the money they need to buy a home, and this loan is paid back over time.
Interest rates can fluctuate on mortgage loans. Regardless of the rate you secured for your mortgage, you have the ability to deduct your mortgage interest on your taxes.
In order to qualify for a mortgage interest deduction, you must itemize your taxes, pay mortgage interest throughout the year, and utilize the property as your primary residence.
2. Mortgage Points
Homebuyers have the option of paying fees, referred to as mortgage points, to a lender at the time of closing on a new home. These points are purchased in order to reduce the interest rate associated with the mortgage loan.
Since mortgage points essentially represent pre-paid interest, homeowners can deduct the amount paid in mortgage points on their tax return.
You must ensure that the points you paid for are listed on your settlement statement, were paid for in cash at the time of closing, and did not replace any other fees associated with a property sale if you want to deduct the mortgage points when filing your taxes.
3. Mortgage Insurance
Any home buyer that puts less than 20% of the purchase price down on a home is required to obtain mortgage insurance. This type of insurance protects the financial institution from extending the mortgage loan should the borrower default on the loan.
If you have mortgage insurance on your loan, you can deduct the insurance premiums when you file your taxes. This type of deduction can help you offset the cost of adding an insurance premium to your budget.
Work closely with a tax preparation professional to ensure you are taking advantage of all the deductions available to homeowners. These deductions will reduce your tax burden and help you secure a larger tax return when filing your federal taxes this year.