Question:

What are the greatest benefits and maximum mortgage interest deduction from tax when you owe your home?

Answer:

The maximum mortgage interest deduction from tax is available when you are in a large tax bracket and you used up the $1.1 M limit towards the purchase and/or rehab of your first or second property.

$1.1M ($1M for first and $100,000 for a second mortgage or home equity loan) is the most general maximum combined mortgage indebtedness for full interest tax deductibility for couples filing jointly. For individuals filing separately, cut this figure in half.

Also, if you have home equity debt exceeding $50,000 or $100,000, whichever applies to your case, you could write interest off the exceeding loan amount if you used it for home improvement or home rehab purposes. Consulting a tax professional in filing complicated returns is quite recommended.

Top Mortgage Tax Deduction Benefits

  1. Mortgage interest, as described above.
  2. Writing off mortgage points - sometimes homebuyers are advised to buy down the mortgage interest rate (buying discount points), and also pay origination points as a major closing cost charge. This is buying mortgage points and those are deductible in full for home purchases. As for refinances, points are deductible over the term of the mortgage. If you refinance again, the points of the previous refinance can be written off immediately.

    There is certain balance between lender and borrower-paid mortgage point amount and other mortgage settlement costs that has to be preserved. Talk to the closing attorney how to maximize mortgage points tax deductibility before you close the loan.

  3. State or city property taxes are fully tax deductible after deducted from the escrow impound account.
  4. If part of your property is setup as an office location for your business, there are applicable tax deductions applicable to that part of your home.
  5. Home selling costs as home repairs (conducted 3 months prior to home sale to make home more attractive to buyers), broker commission, title charges, legal costs, home inspection and administrative costs related to a home sale are all considered exclusive of taxable capital gain.
  6. Home sale proceeds will be tax-free for
    • Up to $250,000 for single individuals, or married filing separately;
    • Up to $500,000 for couples filing jointly.
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