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One of the major benefits of purchasing a home with a mortgage are the tax credits that can be taken advantage of when April 15 comes around.
Many homeowners are unaware of what mortgage related expenses can be deducted and, more importantly, which ones can no longer be deducted.
The most common tax credit associated with mortgages is the interest paid credit. This allows borrowers to deduct the cost of the interest paid on their mortgage on their taxes, which in many cases is the largest tax break available to homeowners.
Unfortunately, as of 2020 any mortgage insurance paid was no longer considered tax deductible. This came as a shock to many borrowers who planned their finances around receiving the tax credit.
Although mortgage insurance is no longer tax deductible, there are still other home related deductions that can be taken advantage of. Real estate taxes can be deducted the year they are paid and discount points purchased at the time of the sale can also be used as a deduction.
The IRS treats discount points as mortgage interest that is pre-paid and allows deductions on certain loan types.
There is a limit imposed by the Internal Revenue Service on how large a loan can be to qualify for an interest paid tax deduction. Any loan that is over $1 million dollars is not allowed to have the interest paid towards it deducted when tax time rolls around.
This knowledge can be used to put the borrower in a beneficial situation in years to come when they plan to purchase a home. Limiting any loan to under $1 million dollars, no matter what the cost of the property, will allow the interest paid into it to be deducted the following year.
The tax laws are always changing and differ from state to state, so it is advised to contact a mortgage specialist with knowledge on mortgage tax laws to provide more information on which deductions you qualify for.
Do you have questions about mortgages? Are you considering applying for one soon? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington serving the entire state, as well as Oregon, Idaho, and Colorado. Our experts are on standby ready to work with you to help you choose which one of our mortgage programs is best for you. Contact us today with any questions you have about mortgages.
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