Mortgage Debt Has Advantages – Tax Advantages

The first time you buy a home, you may break into a cold sweat when you go to sign the loan documents and realize you are committing to paying back hundreds of thousands of dollars.
Mortgage Debt Has Advantages – Tax Advantages
Although having a mortgage is not what any homeowner wants, no one wants to be in debt, there are certain advantages of having a mortgage. First of all, not only does it allow a person to own a home of their own, but it always carries tax advantages. A mortgage is one of the biggest write-off’s available.
Everyone looks for ways to save on their taxes. After all, only two things are certain in life, death and taxes, and the less the taxes are the better. A mortgage, although this means you are in debt and are paying interest, allows people to use the interest paid on their mortgage as a tax write-off. Simply put, it can save a homeowner with a mortgage thousands of dollars in taxes.
This works by first calculating the amount paid in mortgage interest over the year. Once you have this number, you can use it on your 1040 income tax form as a deduction. That’s right, every dollar paid in interest on the mortgage is a deduction and can lower your gross income. By lowering the gross income, not only does it mean you can reach a lower tax bracket and pay a smaller tax rate, but you’ll also have a considerably smaller tax amount due in the first place based on that lower gross income.
As can be seen, the tax benefits of a mortgage are one of the benefits of having a mortgage in the first place. Although simply owning a home in the first place is the biggest plus, the tax benefits are a nice addition to that. They are an incentive that many people reluctant to look into a home and mortgages should consider. After all, you will be happy down the line when you have built up a healthy amount of equity.

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Refinanced Your Home – Claim a Tax Deduction For Points

The mortgage refinance market has cooled off dramatically with recent rate increases. Many people, however, refinanced during 2005 and can claim tax deductions.
Refinanced Your Home – Claim a Tax Deduction For Points
Mortgage rates have been shockingly low over the last few years. This is hardly news to anyone that owns a home. The nominal rates, however, did result in a major boom for the mortgage industry. As rates jostled up and down, millions refinanced to save just the fraction more on their home loans.  Heck, many people refinanced multiple times! Alas, this rapid refinance craze has come to an end with the rise in mortgage interest rates.
If you refinanced this past year to get lower rates, I have some good news. Not only did you get lower rates, but you probably built up some additional tax deductions you can use to cut your tax bill.
To obtain a mortgage, whether new or a refinance, homeowners often have to pay points. These nasty little charges represent a percentage of the loan and are typically an upfront charge. Fortunately, points are deductible. Generally, you will claim a deduction for points as part of the mortgage interest deduction that makes our real estate industry so attractive. The type of loan, however, impacts how the points are deducted.
If you obtained a new home loan for a residence, you can deduct the full amount of the points. To do so, however, you must itemize on your tax return. Since you should be deducting the interest paid on the mortgage as well, this is a no brainer.
If you refinanced an existing home loan for a residence, however, things are a bit different. Yes, you can deduct the points paid on the refinance. Unfortunately, you have to deduct them over the life of the loan. In practical terms, you cannot deduct the full $3,000 you paid in points when you refinanced in August of last year. Instead, you can deduct a percentage of the $3,000. The percentage is the value of the points divided by the number of months of the loan. There are two ways around this tax handicap.
If you refinanced twice in 2005, and some of you did, you can deduct the full amount of the points on the first refinance. Why? You can do this because the life of the first refinance was less than a year, which all occurred in 2005.
In certain cases, points may also be immediately deductible if you used a refinance for home improvements. It is a bit technical and beyond the scope of this article. If you actually used a refinance to improve the home, and you can prove it with receipts, speak with a tax professional to write off all your points immediately.

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