Tax Write-Offs for Home Owners

There are many tax write offs available to home owners and here are a few not to forget:

Points:  Points used to buy down your mortgage rate are tax deductible.  However, origination fees that are a service fee are not.

Pre-Payment Penalties:  Although pre-payment penalties always sting the fact that they are tax deductible helps ease the borrower's pain.

Pro-Rated Real Estate Taxes:  At settlement buyers pay a pro-rated portion of the taxes for the year and their portion is tax deductible.

Pro-Rated Mortgage Interest:  At settlement buyers pay a pro-rated mortgage interest for the month which is tax deductible.

Home Construction Loan Interest:  As long as the buyers move into the property and use it as their primary residence within 2 years they can write off the interest.

Mortgage Interest:  Homeowners can claim an itemized deduction up to $1 million worth of mortgage-debt.

Home Equity Interest:  Homeowners can claim up to $100,000 of home equity debt for their principal residence.

You want to make sure that itemized deductions are higher than the Standard-Deduction ($11,400 for Joint filers, $5,700 for singles, and $8,350 for heads of household in 2009).  If your itemized deductions are less than the standard you'll make out better just using the standard deduction.  In this case you won't see any changes from your taxes before you bought a home.  You just want to make sure you remember to compare the standard deduction to the itemized to get a true sense of what additional write-offs are available to you.

Another thing to take into consideration is the High-Income Phaseout Factor.  In 2009 if your adjusted gross income (AGI) is over $166,800 for both joint and single filers your itemized deductions are reduced by 1% of the difference between what your AGI is and the $166,800 phaseout line.  So if you earned $200,000 your deductions will be reduced by $332.  $200,000 - $166,800 = $33,200 x .01 = $332.  Although not all itemized deductions are reduced by this factor, the benefits of being a homeowner i.e. mortgage interest and property taxes are.

Of course these are simple guidelines to remember, but be sure to contact a tax proffessional to see how this all effects you.  The biggest tax advantage still available is the tax free profit from selling your home which is up to$250,000 for singles and $500,000 for married couples.  The other for first time home buyers is the $8,000 tax credit.