When borrowing money to buy a home, there are certain deductions that you are afforded by the ole tax man that you should be aware of come tax time in April. The following are some of the deductions you may forget about when buying a home:
POINTS ~ Points on a home loan are tax deductable if they are used to bring down the mortgage interest rate. For those that don't know a point is 1% of the loan amount. On a $200,000 mortgage a point would equal $2000.00. You would only want to pay points on a loan if you knew your were going to be in the home for a while.
In order to understand if paying points makes sense you need to calculate the mortgage payment amount with and without points. By looking at the spread between those amounts you can determine how long you would need to be in the house before it would pay off for you.
Getting back to points, origination charges that constitute a "service fee" are not tax deductible.
PRO RATED MORTGAGE INTEREST
When you are buying a home depending on when in the month the home sale closes, the buyers pay either a small or large amount of pro-rated mortgage interest for the month in which they close. Whether it's large or small, a home buyer can write that amount off. The Final Closing/Settlement Statement will show just how much the buyer is due.
PRO RATED REAL ESTATE TAXES
Often times a seller will send the local tax collector's office a check for Real Estate taxes prior to the closing. In many circumstances, however, the buyer pays a pro-rated portion of the taxes for the year at closing. This is one that is often forgotten.
NEW HOME CONSTRUCTION LOAN INTEREST
As long as the construction period doesn't last more than two years before you make the new home your "principal residence," you can write off the interest for that new construction loan.
PRE PAYMENT PENALTIES
Although most home loans today do not have pre-payment penalties on rare occasions you will still find one. If your loan does have a pre-payment penalty and you do pay off the loan early, these penalties are tax deductable.
The above information on tax deductions to remember when getting a home loan was provided by Bill Gassett, the team leader for the #4 RE/MAX Team in Massachusetts in 2007. Bill can be reached via email at firstname.lastname@example.org or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 22+ Years. Bill's office is conveniently located in the center of Hopkinton MA at 77 Main Street.
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