Massachusetts Homeowners - Tax Time and Tax Deductions
It is tax day and time to remember to take the appropriate deductions when you file as a Massachusetts home owner.
The Mortgage Interest Deduction
This has become a bit controversial lately and politicians have debated changing it, but we still have the sacred mortgage interest deduction. And, it has been deemed "America's favorite tax break."
In the early years of the loan, most of your monthly payment will be going to the payment of interest. Regardless of where you have gotten your loan, your lender will send you a Form 1098, Mortgage Interest Statement. It will usually be sent to you in January. This form will list all of the interest you have paid over the previous year.
You are allowed to deduct interest on loans that are secured by either your primary residence or a second home up to a loan amount of $1,000,000. If a loan is not secured by your home, it is considered a personal loan and that interest would not be deductible. The IRS considers a home to be a house, condominium, mobile home, boat, recreational vehicle or a similar property as long it has sleeping, cooking and toilet facilities. The deduction is limited to first and second homes.
Real Estate Taxes
Along with your mortgage payment, you will also be paying property taxes which go to your town. The town uses this revenue to fund its schools, pay for police and fire protection, to maintain roads and to fund other services that are needed by its residents.
Real estate taxes are based on two factors: 1) property assessments, and 2) property tax rates.
When you file your federal tax return, you will be able to deduct the total amount you have paid in property taxes for the year in your Schedule A with your other itemized deductions.
Do you remember those extra 2 or 3 points you paid to make your interest rate lower?
In your mortgage application, you had the option of paying points to help you to get a lower interest rate. A point is 1% of the principal and is usually considered pre-paid interest. For example, one point on a $100,000 loan would be $1,000.
To be treated as pre-paid interest the points have to be paid solely for your use of the money and not for services performed by the lender. Even if the lender calls this amount a loan origination fee, as long as it is a charge for the use of the money, the fees are deductible on your income taxes.
A Home Office - Do You Work at Home?
If you own your own business, you may be able to take advantage of the home office deduction. Although the potential is an attractive one, before you take this deduction, you should make sure that you meet with all of the requirements.
To qualify as a home office for the purpose of the IRS, you must comply with the following:
- Your use of the business part of your home must be:
- For your trade or business, and
- The business part of your home must be one of the following:
- Your principal place of business,
- A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or a separate structure you use in connection with your trade or business.
Tax day is tough on everyone but, as a homeowner, you can lighten your load a little by remembering to take every deduction that is available to you.
(Please consult your tax specialist before taking any tax deduction.)
Copyright 2010 "Massachusetts Homeowners - Tax Deductions"
Claudette Millette, Broker, Owner, The Buyers' Counsel - (508) 881-6230