It’s October and you probably have Halloween, costumes, and sweets on your mind—not taxes. But if you want to make the most of your home sweet home at tax time, it’s important to prepare in the fourth quarter. The steps you take now can save you big on your tax bill.
For starters, it’s never too early to get organized. If you itemize on your taxes and you’re a shoebox receipt saver, the fall is a good time to start sorting out what you’ve been accumulating all year. Home repairs, new energy-saving appliances, refinanced mortgage? Get it all in order. Plus, if you just bought a house (congratulations!) you’ll want to have your closing documents handy for your tax preparer. Here are a few deductions that can help homeowners save at tax time.
- Mortgage interest is tax deductible, so make an extra mortgage payment before January 1, 2017. Here’s why: When you pay rent, you’re paying to occupy a unit for the upcoming month. But when you pay a mortgage, you’re paying for having occupied your home for the previous month. This means that your January 1st mortgage payment is for the month of December, making the interest portion tax deductible for 2016.
Mortgage interest can be also deducted on a refinance, a home-equity loan, or a home-equity line of credit.
- Property taxes are also tax deductible as long as you own your home. The amount of property tax you paid for the year should be on your end-of-year statement. If you just bought your house, the current year’s tax liability was divided between you and the seller. Your share of these taxes is fully deductible. You can find the amount you paid on the settlement sheet you received at closing.
- Points paid on your mortgage or a refinance are tax deductible. The IRS considers points to be prepaid interest. And mortgage interest, as we’ve mentioned, is tax deductible. There are a handful of rules surrounding this, such as:
- Points you paid to lower the interest rate on your mortgage may be deducted in full for the year in which they were paid
- Points paid on a refinance must be amortized over the life of the loan
You’ll definitely want to talk to your tax advisor to make sure you’re deducting mortgage points correctly.
- Loan origination fees may also be tax deductible. If your fees were calculated as percentage of your mortgage, were paid at closing and were for your main home, you can deduct them when you file. You’ll want to check your HUD Settlement Statement to see how your fees were calculated.
- If you have a home office, you can deduct expenses such as phone lines, internet, heating and electric expenses, even a portion of mortgage interest, property taxes and insurance.
If you own a home, you’ll definitely benefit from related tax expenses. If you have any questions about whether or not the above deductions apply to you, or how to take advantage of them, speak with your trusted tax preparer.
If you’re just starting to think about buying a house, tax breaks are certainly something to look forward to. If you have questions about securing a mortgage, what you qualify for, or what you can afford, our bankers can get you started.
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The information mentioned in this article is for informational purposes only, is intended to provide general guidance and does not constitute legal or tax advice. Each person’s situation is unique and may materially differ from the information provided herein. You should seek the advice of a financial professional, tax consultant and/or legal counsel to address your specific needs before any financial or other commitments regarding the issues related to your situation are made. Banco Popular North America does not make any representations or warranties as to the content contained herein and disclaims any and all liability resulting from any use of or reliance on such content.
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