Taxes can be difficult for even seasoned homeowners to understand. With new tax legislation that was passed on December 22, 2017, there may be changes to the taxes you file this year. The following tips can help ensure you’re filing for and receiving all of the home-related tax deductions you’re entitled to.
1. Mortgage Interest Deduction
The Mortgage Interest Deduction can be used by itemizing using Schedule A. To qualify, the mortgage must be secured by either your primary or secondary home; homes, trailers, boats, and RVs can all qualify as long as they have a sleeping area, cooking area, and bathroom.
Interest on mortgages up to $1 million, or up to $500,000 for married couples filing separately, can be deducted. Likewise, if you have an additional loan such as a second mortgage, home equity line of credit, or home equity loan, the additional interest is still deductible up to a total amount of $1 million on all home loans.
While it will not affect your filing this year, beginning in tax year 2018 the mortgage interest deduction cap will be $750,000. The accompanying increase in the standard deduction may make it more worthwhile for homeowners not to itemize in the future.
2. Prepaid Interest Deduction
If you bought a home during 2017, the interest – or points – you prepaid may be 100% deductible along with the mortgage interest deduction. Prepaid interest deductions are also reported using Schedule A; your lender will provide you with a form 1098 that details the amount paid either when closing the mortgage or after refinancing.