First-Time Homebuyer Credit
If you bought your house between Jan. 1, 2009 and Dec. 1, 2009, you may be eligible for the first-time homebuyer tax credit. The credit is valued at 10 percent of the home's value and is capped at $8,000. Therefore, if you buy a home valued at $80,000 or more, your credit will be $8,000. To qualify for this credit, you must not have owned a home in the last three years and your income must be below the cutoff for your filing status. If you are single, head of household or married filing separately, and your adjusted gross income is below $75,000, you can take the full credit. If it is between $75,000 and $95,000, you can take a reduced credit. If you are married and file a joint return, your income must be below $150,000 to take the full credit. You can take a reduced credit if your income is between $150,000 and $170,000.
Points are a charge that is paid to the bank at the time your mortgage is started. Each point represents a fee of 1 percent of the home loan. There are two types of points: origination points and discount points. Origination points are charged to cover the costs of issuing the loan. They are deductible as long as costs that are usually itemized, like lawyers fees or notary fees, are not included.
Discount points are optional points that are paid to lower the interest rate on the loan. These points are always deductible. Mortgage points are always an itemized deduction, but when the points are deducted from your taxes depends on whether you are taking out a first mortgage or refinancing. If you are taking out a first mortgage, you can deduct the cost of the points in the year you pay them. If you are refinancing, you must deduct the points over the life of the loan.
If your mortgage was taken out before Oct. 13, 1987, you can deduct all of the mortgage interest you pay from your taxes. If it was taken out after that date, you are limited to only taking a deduction for the interest on the first $500,000 of the loan if you file a single return or $1 million if you file a joint return. The mortgage interest deduction is always an itemized deduction.
Real Estate Taxes
Real estate taxes that you pay to a state or local government are also tax deductible. The first $500 for single filers and the first $1,000 for joint filers can be taken as an above-the-line deduction. If your real estate taxes exceed that threshold, you can take the remainder of your real estate taxes as an itemized deduction. For example, if you are single and paid $1,200 in real estate taxes, you can deduct $500 as an above-the-line deduction and $700 as an itemized deduction.
Private Mortage Insurance
Private mortgage insurance is usually required if your equity in the house is below 80 percent. If you started your mortgage after 2006 and have to pay private mortgage insurance, you can deduct it as an itemized deduction.
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