It’s that time of year again: tax season. Whether you’re dreading the filing process or have already dotted your “i’s” and crossed your “t’s,” the pros here at Mortgage Maestro have compiled some helpful tips that may get you excited to file your taxes! If you’re a homeowner who has ever wondered how to get more out of your tax return, and what you should claim to do so, then read on to discover how your mortgage can make an impact.
Mortgage Interest
Most of us would love to pay off our mortgage as soon as possible. But chances are, if you’re in the majority, this will take you years. Because you guessed it: interest payments. While that may sound discouraging, the interest on mortgage loans are rarely insurmountable with planning and consideration–not to mention, this form of interest is tax-deductible!
When you take out a mortgage on your home, your home secures that mortgage (loan), acting as collateral. You may have used the mortgage to buy the home or build/remodel the property. Additionally, you may have taken out a second mortgage, a home equity loan or a line of credit. All of these home-related debts constitute deductible mortgage interest.
Self Employed? Plan Ahead
For individuals who are part of an S corp, a business partnership or sole proprietorship (filing via 1120S or 1099), and are planning to buy a house within 12 months: be strategic! Your mortgage and financing can be affected by your total taxable income from the prior year, so filing correctly is crucial. Additionally, the profitability of your organization (determined by these reported earnings, losses, and non-taxable fiscal activity) may directly correlate with your ability to qualify for mortgage financing on a new home. Enlist assistance from a professional tax preparer and mortgage lender to help you maximize your financing power, as well as other deductible aspects of your income from the prior year.
Does My Residence Qualify as a Home? For situations regarding mortgage interest (including the other forms of home-related debts mentioned above), the IRS qualifies the following forms of domicile as viable: houses, condominiums, co-ops, mobile homes, RVs or boats (provided they’re being used as a primary residence), and second homes (as long as you use it for more than 14 days\-=[u78=-091 or more than 10 percent of the number of days you rented it out at fair market value). To further expand the criteria for a home, the IRS has also granted acceptable domicile status to owned properties that have cooking, sleeping, and restroom facilities.
How Much Can I Deduct? As of 2018, homeowners may deduct a maximum of $750,000 in interest from the debt accrued in mortgaging their first (or second) home. If you’re claiming interest from years prior to 2018, you will be able to claim up to $1 million (or $500,000 filed jointly between you and your spouse).
What Records Do I Need?
- Form 1098: This is your Mortgage Interest Statement, provided by your lender, which displays how much of your loan you paid during the year (as well as any deductible points paid).
- Closing Statement: If you bought a home or refinanced your home loan, this document will show the points you paid in order to refinance.
- Mortgage Interest Payee Information: name, address and Social Security number of the person you from whom you purchased your home and to whom you pay your interest.
- Last Year’s Tax Return: especially important if you refinanced your mortgage in the prior year and will be deducting interest over the lifespan of the mortgage.
- Form 1040: To itemize your deductions and file taxes.
With this knowledge, don’t let yourself become overwhelmed by your taxes this year. For more valuable information regarding mortgages, visit our website. Check out our blog for regular updates and informative articles for homeowners.
