- Mortgage insurance is deductible but this may change (also depends on your income & loan amount)
- Property Taxes (typically this is several thousand dollars/year)
- If you are having a home built, the interest on the construction loan is deductible
- “Prepaid interest” which is a closing cost (for interest from the day you close til the end of that month)
- “Points” which are a charge to get your loan, may or may not be deductible (lots of rules on this one)
- Interest you pay every month (this is the largest portion of your mortgage payment)
The following expenses are not deductible:
- Principal you pay on your mortgage
- Utilities like water, sewer, garbage, etc.
- Homeowners Association Dues for a neighborhood or condo complex
- Homeowner’s insurance premiums.
How much do your deductions save you in taxes? Let’s look at an example. For your first year on a $150,000 mortgage you could have these deductions:
- About $8200 in interest payments to write off
- $1500 to $3000 in property taxes (depending on local tax rates)
- $340 in prepaid interest
- $750 of mortgage insurance
That’s a total of $10,800 to $12,000! With a household income of $60,000, that would lower your taxable income to less than $50,000, saving you $2750 on your tax bill. That translates to a savings of over $230 a month for buying a home!
Always discuss tax info with your tax advisor before making any decisions.
“Tax deductions,” also called “write-off’s,” mean you subtract that amount from your income before calculating how much you owe in taxes. A “Tax Credit” is even better because you get that amount taken directly off your tax bill or in a refund.