How much of your monthly mortgage payment is tax deductible?
The short answer is more than you might think, but not as much as you might hope.
Depending on how your mortgage is in place, probably your monthly payment includes principal, interest, taxes and insurance , also known by the acronym PITI
Let's take a look at each category to see if there is a deduction that can reduce your taxable gross income :.
Main - No
The principal is the total amount you borrow from the lender. It is not deductible
The part of your house payment that goes toward principal is generally lower in the early years of the mortgage term, but increases as the term progresses
interest - Yes ..
During the early years of a mortgage, it often makes more of your monthly payment.
the good news is that you can deduct from your gross income, according to the Internal Revenue tax information service for homeowners. This is one of the most beneficial deductions, because it applies to mortgages with balances of up to $ 1 million.
Your mortgage company should have sent you a statement, Form 1098, which describes how much you paid in principal and interest. You should report that information on your tax return
Property taxes - Yes ..
The property taxes on your home and the land it sits on can be deduced
If you bought your home during the tax year, you probably pay property taxes at closing. Your closing statement should have the amount you paid. This is usually the only part of your closing costs deductible.
If you have not bought the house during the tax year, property taxes, then you have probably paid for your county, city, or both. The tax authorities should have sent you a statement of how much you paid on Form 1098 in box 4.
Insurance - No and Yes
Your home insurance are not deductible nor your title insurance.
Home insurance is protecting your home and its contents from fire, wind, and other specified risks. Your mortgage company requires you to buy coverage, but the premiums - often bundled in your monthly mortgage payment - are not deductible
Title insurance is a policy that guarantees the title of a piece of property is valid .. It is often required by your lender but are not deductible.
private mortgage insurance, however, is deductible.
Most lenders require private mortgage insurance, or PMI, when a buyer can not pay a deposit of at least 20% of the purchase price. The cover protects the lender in case of default on the loan. The amount you pay is deductible and should appear on your Form 1098 from your mortgage company.
The outlook for next year
The private mortgage insurance just mentioned expired when the calendar turned to 2014 year. you can still use it for the 2013 tax year, but as things stand, it will not be available when you drop next year
In fact, the changes -. and even eliminating - the mortgage deduction -Interest are discussed almost every year. No one expects disappear immediately, but it is worth keeping an eye on.
What would be the loss of deductions based mortgage receivables impact on your taxes?
photo credit: Håkan Dahlström via photopin cc
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