Tax deductions are considered write-offs. These are the government's way of rewarding taxpayers for investing in Real Estate. There are plenty of write-offs allowed by the IRS, many of which people often forget. I must advise you to consult a tax professional about the details, limitations, and restrictions on these deductions, but there are plenty that you can take advantage of.


Points and Loan Origination fees:
According to the IRS, origination fees charged as points must be paid for the use of money, (for example, to obtain a lower interest rate) in order to be tax deductible. Origination fees that constitute a "service fee" are not tax deductible. The question must be asked, "Does the fee apply to the use of money, or is it a service charge?" If the charge is deductible, you must have paid these, not amortized them (included them in your loan) over the life of the loan. If they are included in your loan, you may deduct them over the life of the loan (as you pay them).

Pre-payment penalties:
Unforeseen circumstances often cause borrowers to pull out of their mortgages sooner than expected. Fortunately, pre-payment penalties are tax deductible, so make sure you mention any pre-payment penalties that you paid to your tax preparer.

Pro-rated real estate taxes:
Even if the seller, mortgage company or the title company sent the tax collector the check, chances are the buyer paid a pro-rated portion of the taxes for the year at closing. Make sure you look on your closing sheet (HUD-1) for the amount that you paid in Real Estate Taxes.

Pro-rated mortgage interest:
Depending on what date in the month the home sale closes, buyers pay some amount of pro-rated mortgage interest for that month. Mortgage interest is paid in arrears when you pay your mortgage, so your monthly payment will include last months interest. When you close in the beginning of the month, you will pay a larger portion of interest then if you close at the end of the month. At the closing you will be required to pay the interest for all the days till the end of the month that you are closing in. This interest is a deduction on your tax return.

Home construction loan interest:
As long as the time period for construction doesn't last more than two years before the new homeis your "principal residence," they you can write off the interest for that construction loan.

Make sure you track your expenses and consider them for deduction if allowable. Please contact your tax advisor if you need more help.