Are you planning to buy a home sometime soon? About 64 percent of American families own their primary residence, according to U.S. Census Bureau statistics, and homeownership is a long-standing part of the American Dream. Whether you’re still shopping or have already set up housekeeping, it’s a good idea to understand some of the tax implications of ownership. The Pennsylvania Institute of CPAs provides a rundown of some of the tax facts you need to know.
Fact: There’s a mortgage interest deduction
Your monthly mortgage bill includes both principal and interest payments. Individuals or married couples filing jointly are generally eligible to deduct all interest payments on home acquisition debt up to $1 million (up to $500,000 for a married couple filing separately). Because of the way mortgages are designed, your initial payments are made up mostly of interest, so the deduction is at its highest in the early years of your loan, which is a nice break for new homeowners. Interest on home equity debt of up to $100,000 ($50,000 for a married couple filing separately) is deductible as well. You can also deduct the cost of points you pay for a mortgage. In many cases, if you use a home loan to buy or build your main residence and the points paid were not more than the points generally charged in your area, you can fully deduct the points in the year you paid them.