Home sweet homeownership tax breaks
you've just taken another
step up the American-dream
ladder and are a homeowner.
Along with the joy of painting,
plumbing and yardwork, you
now have some new tax considerations.
The good news
is you can deduct many home-related
expenses. These tax breaks
are available for any abode
-- mobile home, single-family
residence, town house, condominium
or cooperative apartment.
The bad news is, to take full tax advantage
of your home, your taxes will likely get more complicated. In most cases, homeowners itemize. That means you're not living on "EZ" Street anymore;
you've moved to the 1040 long form and Schedule A, where
you'll have to detail your deductible expenses.
For many homeowners, the effort of itemizing
is well worth it at tax time. Some, however, might find
that claiming the standard deduction remains their best
move. How do you decide?
First, find your standard deduction amount, based on
your filing status: $5,450 for taxpayers who are single or married but filing separately; $8,000 for heads of households; and $10,900 for married couples who file joint returns. Then compare it to the total expenses you can itemize
and file using the method that gives you the larger
To help you figure your possible Schedule
A tax breaks, here's a look at homeowner expenses you
can deduct, ones you can't and some tips to get the
most tax advantages out of your new property owning
Your biggest tax break is reflected in the house payment
you make each month since, for most homeowners, the
bulk of that check goes toward interest. And all that
interest is deductible, unless your loan is more than
$1 million. If you're the proud owner of a multimillion-dollar
mortgaged mansion, the Internal Revenue Service will
limit your deductible interest.
Interest tax breaks don't end with your
home's first mortgage. Did you pull
out extra cash through refinancing? Or did you decide
instead to get a home equity loan or line of credit? Either way, that
interest also is deductible, again within IRS guidelines.
Generally, equity debts of $100,000 or
less are fully deductible. But even then, the remaining
amount of your first mortgage could restrict your tax
break. This could be a concern if you excessively leverage
When a homeowner takes out an equity loan
that, when combined with his first mortgage amount,
increases the debt on the house to an amount more than
the property's actual value, the homeowner faces additional
deductibility limits. In these cases, the IRS says you
can deduct the smaller of interest on a $100,000 loan
or your home's value less the amount of your existing
For example, say you bought your
home three years ago with a minimal
down payment. Your mortgage balance is $95,000
and the house is now worth $110,000. Your bank
says you qualify for a 125 percent loan-to-value
equity line, or $42,500 ($110,000 x 125 percent
= $137,000 - $95,000 left on your first mortgage).
To pay for your daughter's college tuition and
buy her a car to get to school, you take the
bank up on the offer, thinking the interest
deduction on the loan would be icing on the
|-- Updated: Feb. 19, 2009