HOW MUCH OF MY MORTGAGE CAN I REALLY DEDUCT?

What can taxpayers deduct from their mortgage payments? What portion of a payment consisting of principal, interest, taxes and insurance, if any, is deductible? To deduct the expenses of owning a home, at least those costs paid in your mortgage payment, taxpayers must first itemize deductions.

Simply put, interest paid on a mortgage is tax deductible. Points that are paid to lower the interest rate are also deductible. Taxpayers can deduct the interest paid on first and second mortgages up to $1,000,000 in mortgage debt (the limit is $500,000 if married and filing separately). Any interest paid on first or second mortgages over this amount is not tax deductible. If the loan is not a secured debt on your home, it is considered a personal loan, and the interest you pay generally isn’t deductible.

Home mortgage interest is any interest you pay on a loan secured by your home, either as a principal residence or a second home. The loan may be a mortgage to buy your home, or a second mortgage, a line of credit, or home equity loan. You can deduct home mortgage interest if you file Form 1040 and itemize deductions on Schedule A (Form 1040) and the mortgage is a secured debt on a qualified home in which you have an ownership interest. Mortgage interest may also be deducted for New York state taxes. However, the standard deduction is $15,000 ($7,500 if you are single), so your interest and other deductions must clear $15,000 to make it advantageous.

Real estate or property taxes may be deducted on Schedule A of Form 1040, Line 6. You must have paid them either at settlement or closing, or to a taxing authority, either directly or through an escrow account, during the year. Real estate taxes may also be deducted from your New York state taxes. However, some things like charges for services, assessments for local benefits, transfer taxes, or homeowners’ association assessments may show up on your real estate tax bill and be paid from your mortgage payment. These types of expenses may not be deducted as real estate taxes.

Services which are not deductible include those for trash or recycling pickup, unit fees for things like water, and flat fees for governmental services. A taxpayer must determine if any such charges are included in their real estate tax bill. As to nondeductible assessments for local benefits, you cannot deduct amounts you pay for improvements that tend to increase the value of your property like the construction of streets, sidewalks, and water or sewer systems. Because homeowners’ assessments are imposed by an HOA and not a state or local government, they are nondeductible.

Mortgage insurance premiums may also be deducted (on Schedule A of Form 1040, Line 13) yet expenses usually included in your house payment like the amount applied to reduce the principal of the mortgage and homeowner’s and fire insurance premiums are not deductible. To summarize whether the costs paid through your mortgage payment are deductible —  interest and real estate taxes are deductible, but principal and most insurance is not. Consult with an experienced and knowledgeable tax attorney to determine if your mortgage expense is deductible.

If you have a question or concern about a possible mortgage deduction, or any other tax matters, you may call the tax experts at Thorgood Law Firm www.thorgoodlaw.com  For a FREE consultation call 212-490-0704.HOW MUCH OF MY MORTGAGE CAN I REALLY DEDUCT?

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