Homeownership Tax Breaks
We’re officially in the tax season again and fortunately homeownership still avails homeowners multiple tax deductions in helping to alleviate some of the burdens due Uncle Sam in April.
Many home-related expenses are deductible and apply to most any “abode,” including a mobile home, single-family residence, town house, condominium, or cooperative apartment.
Typically for the average homeowner the interest paid on the monthly mortgage payment is the largest single tax deduction they are entitled to.
The IRS allows the homeowner to deduct all the mortgage interest paid on loans up to $1 million dollars ($500,000 or less if married and filing separately). This applies to mortgage loans taken out after October 13, 1987, “to buy, build, or improve your home (called home acquisition debt).” For home loans higher than this $1 million there will be limitations as to the amount that is deductible. Interest deductibility only applies if the mortgage is a secured debt. A secured debt is “one in which you sign an instrument (such as a mortgage, deed of trust, or land contract).”
Mortgage interest is also fully deductible on a second home, and this deduction may apply to “homes” such as a boat or RV, as long as they have cooking, sleeping and bathrooms facilities.
If the second home is used as a vacation rental, the mortgage interest is still deductible provided that the homeowner spends at least part of the year at that location. Deductibility requires homeowner use of the second property at least 14 days per year, or more than 10 percent of the number of days that it is rented out (whichever is longer). If these requirements are not met the IRS may consider the place a residential rental property and eliminate the interest deduction.
Interest deductibility also applies to home equity debt, “but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married and filing separately),” says the IRS. Always consult a qualified tax professional for this and all tax matters. More deductions will be covered in a following blog.