Now that tax season is here, it’s time to rejoice, all ye homeowners! You have the freedom and (possibly) extra cash coming your way to afford cosmetics, furnishings, fixes, and renovations.
The key to this freedom and (possible) cash is filling out your itemized deductions under Schedule A in the dreaded 1040 long form, which can be found here.
If you pay property taxes under your local or state government, great news—you may deduct them and any real estate taxes you pay. Also, a portion of your monthly mortgage may be deducted on your tax return. The interest is what’s deductible. The requirement is that you must stay in that home for at least 14 days per year (or more than 10% of the days it’s rented annually). If you fail to meet this requirement, it may be that the IRS has classified your home as a rental property and not a second home. Even more rules apply if the latter is the case.
Points may also be deducted which are calculated based on IRS’ criteria, usually loan origination fees, loan discount, discount points, or maximum loan charges. The full amount of points gathered annually may not be deducted in the full amount, so be sure to check out the IRS’ guidelines on points.
Mortgage interest, discount points, and origination fees are called the “big 3” mortgage write-offs.
If you have a VA home loan, you may be eligible for different deductions found under IRS Publication 530. For instance, you may be able to deduct interest through a VA cash-out refinance loan, which would enable vets with credit card debt to reduce their high interest to low-interest for their home loans. Vets benefit doubly from using this program because not only can they reduce their monthly payments, but they can also deduct the mortgage interest. Also, be sure to check out the rules for capital gains. Most married homeowners (filing jointly) can sell their home every two years tax-free. Since service members typically move every couple of years, this is a very handy thing to keep in mind for when you put that VA loan to use!
If you need specific guidance on filing your tax return, contact a tax advisor or read up on the regulations in IRS Publication 936, which can be found here. Or, if you have any questions at all pertaining to this blog or anything else, please give us a call at (210) 566-6355. We can't guarantee we'll have the answer to questions like, "who was the speaker of the house in 1932?" or, "how does the theory of relativity apply to space travel?", but we'll definitely be able to help you with your real estate needs! We value all of you, and good luck on your taxes this year! Happy filing! :)