Answered: Your Most Burning Questions About Mortgage Interest Deduction

Answered-Your Most Burning Questions About Mortgage Interest Deduction- 150x150Mortgage interest deduction has been around for a long time and has helped support the real estate market in the United States. This saves a significant amount of money for home owners, especially for those who have recently taken out a mortgage loan. Having this tax deduction makes home ownership more affordable because it reduces the home owner taxes. Here is a list of the most common questions about mortgage interest deduction and the answers that you are looking for:

Top 5 Mortgage Interest Deduction Questions

  • Question 1: Do the rich benefit more from mortgage interest deduction? The truth is that, while mortgage interest deduction is beneficial for rich people, it mostly benefits middle-class families. 86 percent of the households who take advantage of mortgage interest deduction have an income of less than $200,000, with most of these households including the incomes of two married people.
  • Question 2: Would eliminating mortgage interest deduction affect the economy and the housing market? Eliminating mortgage interest deduction would affect both the housing market and eventually the economy. Home buyers would be less attracted to buying a home, which would result in lower home prices due to low demand. Current home owners would experience major losses because they would find themselves with underwater mortgages. Falling home prices and less home buyers would mean that tax revenues would decrease, which would have a large negative impact on the economy.
  • Question 3: Is it true that only a small percentage of home owners claim mortgage interest deduction? Almost all home owners with a mortgage take advantage of mortgage interest deduction at one point during home ownership. In fact, over 70 percent claim mortgage interest deduction in the first year of home ownership.
  • Question 4: Would everyone have to pay more in taxes if mortgage interest deduction was eliminated? The middle-class would be most affected if mortgage interest deduction was eliminated. The taxes that middle-class households would have to pay would be much higher than what upper-class households would have to pay.
  • Question 5: Does mortgage interest deduction encourage people to buy larger homes? Generally, the size of the home has more to do with the size of the family which buys it. Of course, bigger families need a bigger home, so they will have to pay more interest, which means they will benefit more from mortgage interest deduction than families who purchase smaller homes.

There are a few misconceptions surrounding mortgage interest deduction, but the bottom line is this: most home owners can take advantage of mortgage interest deduction. You shouldn’t choose a home based on how much you will save with mortgage interest deduction, but remember that owners of larger homes save more money over time. Eliminating mortgage interest deduction would most likely have huge negative impact on the economy, so you can still take advantage of it for the foreseeable future.

 

Are You Paying Too Much in Property Taxes?

Are You Paying Too Much in Property Taxes- 150x150Usually, based on the value of your home, property taxes are used by the local government agencies to fund infrastructure, public schools and other programs. Home owners who don’t pay their property taxes can end up losing their homes in a tax sale or tax lien foreclosure. Property taxes are one of the major expenses for a home owner and they usually increase year after year.

It is important to make sure that you are not being overcharged on your property taxes, so you should understand how the tax system works. Let’s take a look at how property taxes are calculated and what you can do to lower them.

How Property Taxes Are Calculated

Property taxes that are raised by the states are a large source of income for the government. Most of the time, property taxes will be in the form of a percentage, determined after several boards and councils will have to decide how much money will the government need to cover its expenses without running into any financial issues. Many important programs, such as education, transportation, emergency services and parks are funded by the government with money raised from property taxes.

Home owners are normally required to pay a flat rate percentage of their home value as property taxes. Property taxes usually vary between municipalities, but they are the same for all home owners in a certain district. Taxes are collected by many government levels, such as states, counties, and districts, so the property tax amount will be the combined percentage of home value from every one of these institutions.

Your home’s value will be determined through a professional assessment made by the local government. This assessment will be used solely to determine how much you will have to pay in property taxes, and cannot be used for insurance or sale purposes. The inspectors will make note of all improvements made to your home and areas that have problems. In order to determine your home’s value, they will also look at recent home prices in your area and if your neighborhood is regarded as safe or not.

The government has the power to increase or decrease property taxes based on how much money it needs. For example, if there is a need for improvements to schools, then the taxes will most likely increase until the deficit is improved substantially. On the other hand, lowering taxes can attract new residents, which will in turn stimulate the local economy.

Other things that can increase your property taxes are improvements or additions that will add to the value of your home, but also buying a car, a boat or other type of vehicle can increase this as well.

Lowering Your Property Taxes

Property taxes can be real burdens for most home owners, so lowering them will not only save you money, but will also lower the risk of you being unable to pay your bills and risk losing your home. Here are a few steps to lower your property taxes:

  • Go to the town hall and request your property tax card from the assessor’s office. The property tax card includes info that the town has compiled about your property over time, and it should be carefully studied. You should report any mistakes or erroneous information to the assessor and request a re-evaluation. While they are not very common, mistakes do happen, and it would be a shame to go on paying years of property tax based on false information.
  • Research other homes in your neighborhood to find any discrepancies between what your home and other homes were valued at. There is a chance that you will find a home with more rooms or additions that was valued lower than your home, in which case you can ask for a reassessment.
  • Don’t leave the assessor alone during the inspection. Walk with him or her and point out the good parts of your home as well as the parts that need repairs or updating.

Owning a nice home in a good neighborhood is expensive enough without having to overpay in property taxes. Of course, the nicer the home, the higher the property taxes will be, but you should of course make sure that you are not overpaying due to a mistake or because the assessor over-evaluated your home. As you have read in this article, lowering your property taxes is not an impossible task and it is something that will certainly make your life easier.

10 Clever Ways to Save Money Using Home Buyer Tax Deductions

Top 10 Tax Deductions for Home Buyers-150x150Buying a home is a dream come true for most people. While becoming a home owner usually involves a great financial sacrifice, it does come with some perks, besides owning your own home, of course. Many expenses related to your home are tax deductible, and these deductions apply to any type of home: town house, apartment, mobile home, single family residence and more. Unfortunately, this will complicate your taxes, but the extra effort put into detailing your deductible expenses is well worth it.

From the time you become a home buyer until you decide to sell, your home will provide a lot of tax benefits. Consulting a professional advisor in order to get all the details is always a good idea, but here is a list of the top 10 tax deductions for home buyers.

Top 10 Deductions

1. Mortgage Interest Deduction. If your mortgage loan is less than $1 million, then the interest that you are paying is tax deductible. For the first few years, your monthly payment will be mostly made up be interest, so this tax deduction will make our home more affordable, especially if you are a first time home buyer.

2. Points Deduction. When taking out a mortgage loan, your lender charges you a variety of fees. One of these fees is called “points” and one point equals 1 percent of the principal on the loan. Unlike in the case of a mortgage refinance, where the points are deducted over the life of the loan, when buying a home with a mortgage loan, the points are fully deductible up front.

3. Interest Deduction on a Home Improvement Loan. If you take out a loan in order to make “capital improvements” to your home, be aware that the interest on this loan is tax deductible. Capital improvements are improvements to your home that increase its value or extend its life, and should not be confused with simple repairs. In case of a loan taken out for repairs to your home, the interest will not be deductible.

4. Equity Loan Interest Deduction. A portion of the interest that you paid on a home equity loan or line of credit can be deducted, but there is a limit set by the IRS on how much you can treat as home equity. This limit is $100,000 for a family or $50,000 per each member of the married couple, or the home’s market value.

5. Property Taxes Deduction. A large part of your monthly mortgage payments will be represented by property taxes. The amount is held into an escrow account in order to pay the property taxes yearly. You can only claim this tax deduction when the money is taken out of the escrow account and paid.

6. Private Mortgage Insurance (PMI) Deduction. When getting a mortgage loan, if your down payment is less than 20 percent, you will usually be required by your lender to pay a Private Mortgage Insurance. This type of insurance can represent a large portion of your monthly payment, and it is tax deductible, but only for those who qualify.

7. Selling Profit Deduction. Up to $250,000(or $500,000 for a married couple) of the profit that you or your family make from selling your home is tax deductible, with the condition that you have owned your property for at least 2 years and the home has been your primary residence for 2 of the past 5 years.

8. Home Office Deduction. If part of your home is used as an office, you will be able to deduct a percentage of your mortgage and utilities. There are a few requirements, in order to qualify for this deduction: your home office has to be your primary office location for your business, it must be used only for business, and its size has to be realistic.

9. Health Related Improvements Deduction. Making improvements for medical reasons to your home can be tax deducted, as long as the improvements are made for a chronically ill person.

10. Moving Expenses Deductions. If buying your home is a result of your need to relocate for work, then you might be able to deduct the cost of moving and other related costs. However, your new job must be more than 50 miles further from where your old job was.

Buying a home can provide some important benefits when the time comes to file your federal tax return. From deducting your mortgage interest, to tax deductions related to your relocation, there are a lot of areas in which you can save money, as long as you qualify and do your research.